Gold price falls again as Yellen sounds hawkish tone

London (Jan 19)  The gold price faltered again last night, falling back to the $1,200-an-ounce level following a warning on interest rates from Federal Reserve chairwoman Janet Yellen.

Speaking two days before Donald Trump's inauguration ceremony, Yellen said the US risked a "nasty surprise" if it waited too long to raise rates, says the Financial Times, adding that the Fed intends to increase rates three times this year and "a few times a year until 2019".

Increasing interest rates are bad news for gold because it does not offer an income and is therefore comparatively less attractive than assets that generate yield.

After hitting an eight-week high of $1,218 an ounce on Tuesday, suggesting the gold price might break its shackles to swing substantially higher, trading fell back to $1,201 an ounce.

It was little changed this morning, at $1,204 an ounce

No US interest rate rise expected from Federal Reserve this month

Federal Reserve policy meeting starts – interest rate hike not expected

That's because markets – and the Fed itself – will first wait to get a sense of Trump's policy agenda after he takes over as president tomorrow, says Reuters.

"We can expect random shocks from him," said To.

Last year, the prevailing narrative was that a pledged $1trn (£800bn) of infrastructure spending would boost growth and inflation and so interest rates, which would be bearish for gold.

INTL FCStone analyst Edward Meir said: "We would view any short-term weakness as a buying opportunity in gold given that we do not think the Fed will be pushing the higher rate trajectory story so aggressively over the short-term.

"The Fed would want to first wait and see what kind of fiscal policies Donald Trump formulates and sends to Congress."

Source: TheWeek