By Myra P. Saefong and William Watts
Gold futures finished lower on Monday, extending losses from the previous session, as expectations for a U.S. Federal Reserve interest-rate increase later this year grow.
The Fed will conclude a two-day policy meeting Wednesday afternoon. While no monetary policy moves are expected, its statement will be watched closely for clues to future action.
Gold for August delivery on Comex GCQ6, -0.61% fell $3.90, or 0.3%, to settle at $1,319.50 an ounce. Prices posted a second consecutive weekly loss on Friday as a stronger dollar and rising equities dulled its haven appeal. September silver SIU6, -0.43% lost 4.2 cents, or 0.2%, at $19.647 an ounce.
“The most important development of the week comes Wednesday when the Federal Reserve issues its policy statement,” said Edward Meir, independent commodity consultant at INTL FCStone, in a daily note. “Investors will be interested to see what the central bank says about the Brexit vote and depending on its assessment, they should get a better handle on the Fed’s next rate move.”
Rising real interest rates lower the opportunity costs of holding gold because the metal provides no yield, and entices investors to rotate into riskier assets like stocks.
In a note, David Cheetham, market analyst at XTB, said the strong June employment report released on July 8 followed by other relatively upbeat U.S. data have “supported the case for tighter monetary policy in the U.S. in the not-too-distant future.”
The dollar DXY, -0.16% was trading slightly lower against major rivals after posting a fifth-straight weekly gain. A stronger dollar can undercut commodities priced in the unit as it makes them more expensive to users of other currencies.
A decline in the U.S. stock market failed to provide much support to gold prices, with the Dow Jones Industrial Average DJIA, -0.42% trading lower after notching a record high last week which sapped gold of its haven appeal.
For now, “physical demand in the U.S. remains the principal driver of the gold price,” said Julian Phillips, founder of GoldForecaster.com. “If that demand slackens, prices [may] subside slightly, much in line with the rise of the dollar.”