Gold Prices Fall Below $1,300 as Focus Shifts to Fed

Jun 12, 2018 – Gold prices fell below the psychologically important $1,300 level as the Federal Reserve's two-day meeting got underway amid investor expectations the U.S. central bank will hike rates on Wednesday.

Gold futures for June delivery on the Comex division of the New York Mercantile Exchange fell by $4.20 or 0.34%, to $1,298.80 a troy ounce after trading as high as $1,304.80.

The weakness in gold prices comes a day ahead of the Federal Reserve's decision on interest rates. But with most market participants expecting the Fed to raise rates Wednesday, the Fed's update on monetary policy will likely warrant added attention.

Following the Fed's March meeting, most policymakers expected the central bank to hike rates three times in 2018 but a string of bullish data has renewed expectations for a fourth rate hike.

Wells Fargo said it expects core PCE - the Fed's preferred measure of inflation – to reach the Fed's 2% target in the third quarter of year, paving the way for the U.S. central bank to hike rates on Wednesday and twice more in 2018.

Against the backdrop of strong U.S. economic growth, spurring expectations for a faster pace of U.S. monetary policy tightening, safe-haven assets such as gold and, to a lesser extent silver, are losing their attractiveness, said FocusEconomics in its Consensus Forecast, Commodities, June 2018 report.

In a rising interest rate environment, investor appetite for gold weakens as the opportunity cost of holding the precious metal increases relative to other interest-bearing assets such as bonds.

Gold prices were also held back by a rising dollar following upbeat inflation data, reaffirming investor expectations the Federal Reserve will continue on its rate hike path.

In other precious metal trade, silver futures fell 0.37% to $16.89 a troy ounce, while platinum futures lost 0.68% at $900.20 an ounce.