Gold drops as investors await hints on US rate hikes

Gold drops as investors await hints on US rate hikes
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(Feb 21): Gold prices fell on Tuesday amid a rise in the US dollar as investors awaited more clues on the timing of any US interest rate hikes in a series of speeches by Federal Reserve officials this week.

Spot gold fell 0.5% to US$1,232.31 per ounce by 0338 GMT, while US gold futures also fell 0.4% to US$1,233.60 an ounce.

The dollar index rose 0.3% to 101.22.

"US economic data is currently the driving force behind gold," Heraeus Metal Management said in a note.

"Fed chief Janet Yellen recently signalled that the US economy was prepared for an early increase in key interest rates. Economic data confirming this assessment will put a strain on the gold price in the coming weeks and months," Heraeus said.

The heads of five regional US Federal Reserve branches are scheduled to speak this week. In addition, Fed Board Governor Jerome Powell speaks on Wednesday, when minutes of the last policy meeting are also due.            

Cleveland Fed President Loretta Mester said on Monday she would be comfortable raising interest rates at this point if the economy kept performing the way it did.             

Spot gold may break a support at US$1,233 per ounce and head towards the support at US$1,226, according to Reuters technical analyst Wang Tao.              

Bullion is highly-sensitive to rising US interest rates, as these increase the opportunity cost of holding non-yielding bullion, while also boosting the US dollar.

Investor appetite has shown signs of easing since gold hit a three-month high on Feb 8. The world's largest gold-backed exchange-traded fund, SPDR Gold Shares, reported an outflow of 2.4 tonnes on Friday, the first in nearly four weeks.

Data also showed on Friday that speculators cut their net long position in COMEX gold for the first time in three weeks in the week to Feb 14.                    

Political uncertainty, however, including lingering doubts over President Donald Trump's policies and the potential impact on the Fed's strategy, as well as elections in France and Netherlands, offered broad support for the yellow metal.

"We anticipate that the generally positive sentiment in the gold market remains intact," analysts at Heraeus said.

Gold prices have risen about 7% this year.

Meanwhile, spot silver fell 0.5%, to US$17.92 per ounce, while platinum prices was down by 0.6%, to US$995 per ounce.

Palladium fell 0.5%, to US$768.18 per ounce.