Gold drops more than 1% as dollar strengthens during Fed testimony

NEW YORK/LONDON — Gold declined more than one percent and hit its lowest in a year on Tuesday as the US dollar strengthened during testimony by US Federal Reserve Chairman Jerome Powell to the US Congress.

Mr. Powell offered an upbeat view of the US economy in an appearance before the Senate banking committee, with markets expecting two more interest rate increases this year amid a continued economic expansion.

The dollar, in which gold is priced, gained against a basket of currencies during the testimony, making gold more expensive for non-US investors.

“The dollar is really reacting to this ‘goldilocks’ effect of the economy and a slowly rising interest rate environment. That is usually a recipe for a stronger dollar,” said David Meger, director of metals trading at High Ridge Futures in Chicago.

Higher interest rates make gold more expensive to own since bullion does not earn any interest or dividends, and costs money to store and insure.

Spot gold was 1.1% lower at $1,226.91 per ounce (/oz) by 1:36 p. m. EDT ( 1736 GMT), having hit its lowest since last July at $ 1,225.58/oz. It is down more than five percent for the year.

US gold futures for August delivery settled down $12.40 or one percent at $1,227.30 per ounce.

The International Monetary Fund warned on Monday that escalating trade tensions following US tariff actions threaten medium-term growth prospects.

The comments came as China reported slower second-quarter growth, though Beijing said that would not affect its 2018 growth target. UBS economists lowered their estimates for Chinese growth to take into account trade war escalation.

“If China is slowing down, there will be consequences to global commodity consumption and that’s going to drag gold down as well,” said Richard Xu, a fund manager at China’s biggest gold exchange- traded fund ( ETF), HuaAn Gold. “Chinese gold ETF liquidity has dropped a lot these days so that means people do not see any major breakthrough in either direction.”

Spot gold could break support levels at $1,220 and the psychologically important $1,200, said Josh Graves of RJO Futures.

Silver fell 0.90% to $15.60/oz, dipping to $15.51, its lowest since July 2017. Platinum fell 1.2% to $812/oz, hitting a two-week-low $808.89. Palladium fell 0.40% to $913.50/oz, sliding to $905.05, its lowest since April 9. —