Gold Prices Sensitive to Interest Rates

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Gold prices remained steady in the early trading hours on Monday as the dollar eased and Asian stocks firmed, with the metal holding near three-week lows on growing expectations the U.S. Federal Reserve will hike interest rates as early as June.

Bullion has been under pressure since the Fed last week released the minutes of its April meeting, which showed officials believe the U.S. economy could be ready for another interest rate increase next month.

Gold prices are sensitive to interest rates, gain in which raise the opportunity cost of holding non-yielding bullion.

Spot gold was down 0.1 percent at $1,250.60 per ounce at 0644 GMT, still close to $1,244 touched last week, the lowest since April 28. U.S. gold futures dipped 0.1 percent to $1,251.20.

The safe-haven asset found some support as the dollar fell versus the yen on Monday, dragged lower by sliding Tokyo stocks and data showing Japan logged a much larger-than-expected trade surplus in April.

But the greenback remains close to its highest in nearly two months against a basket of major currencies reached last week, supported by the Fed’s rate hike expectations.

Gold prices will likely hoover around the current levels over the course of the coming week, as an upward trending dollar should continue to weigh in on prices.

Some market analysts believe that investors are still betting on a not-so-soon increase in U.S. interest rates, reflected in the continued support for gold-backed exchange traded funds.

Holdings in the world’s largest gold-backed ETF SPDR Gold Trust rose 1 percent to 869.26 tonnes on Friday, the highest since November 2013.

Among other precious metals, spot silver dropped 1 percent to $16.34 an ounce. Spot platinum inched down 0.4 percent to $1,013.74 per ounce and spot palladium fell 0.9 percent to $553.10 per ounce.

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