Gold Futures Slump as USD Strengthens

The price of Gold futures witnessed its biggest weekly fall in more than one month, as investors analysed the comments made by Janet Yellen in her speech at the Jackson Hole economic symposium and some other comments made by top Federal Reserve officials concerning the likelihood of an interest rates hike.

The dollar received a lot of high volatility mixed trading after the Fed Chair’s speech at Kansas City Fed’s annual economic symposium the Wyoming, but after the volatility calmed there was an overall bullish sentiment driving the USD. Ms. Yellen had expressed that the issue for a fed funds rate increase had risen in the last few months, but the Feds will require the results of incoming data releases concerning the US economy. After the comments were released, gold prices rose higher to orbit $20 an ounce as the USD initially edged lower against a basket of other major currencies.

The dollar later gained major strength in the wake of fresh statements made by the Fed Vice Chairman Stanley Fischer in an interview on CNBC, who implied that Yellen’s speech was very much in line with the possibility of two rate hikes before the end of the year. Fischer further stated that the jobs report for August will play a major role in the Central Bank’s rate decision, further stressing Yellen’s emphasis on the importance of future economic data.

The US dollar soared in the afternoon, reaching two-week highs against a basket of global currencies. The dollar index settled up 0.8% at 95.57. By the end of day Friday, traders were pricing in a 63.7% probability the Federal Reserve will raise interest rates this year, according to the CME 30-day Fed Fund futures prices. The markets had placed that probability around 50% prior to Yellen’s speech Friday.

The greater chances for higher rates would usually serve as a major fundamental uptick for the dollar, placing the value of precious metals priced in the currency much lower. And a rate increase tends to slash the demand for assets that do not provide yield, like gold. Despite its recent skid, gold has seen its value rise relative to silver. Gold’s premium over silver has increased around 6% over the past month and is currently at its highest since mid-July.

Silver prices shed some of its earlier gains on Friday to close 13 cents higher or 0.7% at $18.75 a troy ounce. The grey metal finished down 3.6% for the week. In other commodities, oil prices rose higher Friday, but had their worst week in over a month. Nymex WTI crude futures closed 0.7% higher on Friday. ICE Brent crude futures also gained 0.5%.

The market’s attention has now been turned to the economic data due next week, peaked by the Labor Department’s nonfarm payrolls report on Friday, September 2.