(Bloomberg) -- Gold investors are waking up to the reality of an increasing probability that borrowing costs in the U.S. could rise this month.
Bullion futures fell for a second day as the odds that the Federal Reserve will boost interest rates this month jumped to 80 percent on Wednesday, from 52 percent a day earlier and 34 percent last week, according to Fed fund futures data compiled by Bloomberg. Higher rates curb the investment appeal of non-interest bearing gold, while boosting the dollar.
Gold, which rallied more than 8 percent this year, has been thrown into reverse amid a rapid rethink by investors as Fed officials signaled more willingness to consider a rate hike this month. The Fed's preferred measure of consumer prices climbed 1.9 percent from a year earlier, just shy of its 2 percent target that was last met in April 2012, according to a government report on Wednesday.
The slump in gold prices “is due to a firmer U.S. dollar and significantly higher rate hike expectations in the U.S.,” Commerzbank AG analysts including Eugen Weinberg said in a note. The precious metal may see more downward pressure, should Fed Chair Janet Yellen's speech Friday point to a rate hike soon, Commerzbank analysts wrote Wednesday.
Gold futures for April delivery slipped 0.3 percent to settle at $1,250 an ounce at 1:45 p.m. on the Comex in New York. The Bloomberg Dollar Spot Index gained 0.2 percent.
On Tuesday, New York Fed President William Dudley said the case for tightening had become a lot more compelling, while the San Francisco Fed's John Williams said he expects a rate rise will receive “serious consideration” at the March 14-15 meeting.
In other precious metals:
- Silver futures rose declined on the Comex.
- Palladium futures gained on the New York Mercantile Exchange, while platinum futures slipped.
--With assistance from Eddie van der Walt
To contact the reporters on this story: Luzi Ann Javier in New York at ljavier@bloomberg.net, Ranjeetha Pakiam in Singapore at rpakiam@bloomberg.net.
To contact the editors responsible for this story: James Attwood at jattwood3@bloomberg.net, Joe Richter
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