Gold prices sank Tuesday, as the dollar rose amid increased investor optimism that the Federal Reserve would raise interest rates after the summer.
Gold for June delivery, the most actively traded contract, was recently down 1.5% at $1,186.50 a troy ounce on the Comex division of the New York Mercantile Exchange, its lowest level since May 12.
U.S. durable goods data released Tuesday morning helped convince investors that the economy was righting itself after a recent wobble. While demand for big-ticket manufactured goods fell last month, underlying figures suggest business investment is slowly starting to pick up. The numbers came on the heels of last week’s stronger-than-expected consumer prices report, which lifted the dollar when it showed inflation firming for the third straight month, another sign that the economy is recovering.
The prospect of higher rates is weighing on gold, which struggles to compete with yield-bearing investments when borrowing costs rise. At the same time, prices are being pressured by a stronger dollar, which makes gold more expensive to foreign buyers.
“The continuing debate over the summer months about the timing of the Fed’s first rate hike should prevent a rise of the gold price…for the time being,” analysts at Commerzbank said in a note to investors.
The WSJ Dollar Index, which gauges the buck against a basket of 16 currencies, was recently up 0.8% to 87.04.
