Gold futures drifted lower Monday in the US amid a sobering conclusion that US monetary policy will begin to normalise quicker than anticipated.
Gold for June delivery on the Comex division of the New York Mercantile Exchange was last down $1.30 or 0.1 percent to $1,251.60 per ounce. Trade has ranged from $1,243.50 to $1,256.80.
Last week’s hawkish Federal Open Market Committee (FOMC) meeting minutes illustrated that the policy-board is more optimistic on the health of the US economy than market participants.
Only a fifth of investors were expecting a rate hike in June before the minutes were released, but a majority of the central bankers agreed that if the positive continued to demonstrate the health of the ongoing recovery, they would be comfortable raising the Federal Funds rate by 25 basis-points.
“The light does not seem to be shining on the precious metals market as the Federal Reserve and its minions have been prognosticating interest rate hikes to the tune of two or more before year end,” Heraeus Precious Metals said in a note.
During the equity selloff at the beginning of the year, gold saw major safe-haven buying. But in the interim, the hawkish rhetoric has help stage a dollar recovery and pressure the entire commodities space.
Today, the US dollar index dipped slightly to 95.18 – the index, however, has stayed above 95 since it climbed to a seven-week high in the aftermath of the minutes release.
Nonetheless, inflows show investors are still drawn to the precious metal with 12.28 tonnes added between Friday and today, bringing the totall to a new year high of 1,898 tonnes. However, short-positioning is starting to become a major issue for market participants with net short long positions hitting record highs.
“There is, however, one major factor in the market that gives us very real reason to be concerned: the net commercial short position in gold futures is amongst the highest levels seen since the turn of the century and characteristically these have developed at important gold market tops,” Dennis Gartman, editor and publisher of The Gartman Letter, said.
“The top in 2008 was made when the commercials were almost as short as they are now; the top in ’09 was made the same way as was the real top in 2011 when gold peaked at $1,900. Attention must be paid,” Gartman added.
In data today, EU flash manufacturing data disappointed at 51.5 against a forecast 51.9. The flash services PMI was close to expectations at 53.1.
US flash manufacturing PMI for May disappointed at 50.5, below the economic consensus of 51.0 and the lowest mark since 2009.
Meanwhile in monetary news, the G7 meeting over the weekend in Japan failed to produce any major headlines despite the committee attempting to address topics like the oil market glut and global equity instability.
FOMC members due to speak this week include John Williams of San Francisco and James Bullard of St. Louis on Monday, both of whom have a more hawkish view.
Philadelphia Fed president Patrick Harker, Neel Kashkari (Minneapolis) and Robert Kaplan (Dallas) are all scheduled to speak on Wednesday, although none is a voting member. Meanwhile, Fed governor Jerome Powell is set to speak about the economy in Washington on Thursday.
But the greater focus will be on Fed chair Janet Yellen, who is scheduled to appear at Harvard on Friday, along with former chairman Ben Bernanke.
Turning to US markets, the Dow Jones industrial average and S&P were up 0.2 percent and 0.1 percent respectively, while the dollar gained 0.1 percent to $1.1221 against the euro.
As for other precious metals, Comex silver for July settlement slipped 9.2 cents or 0.6 percent to $16.440 per ounce. Trade has ranged from $16.325 to $16.590.
Platinum for July delivery dipped $8.50 or 0.8 percent to $1,014.80 per ounce, while the most-actively traded palladium contract came in at $551.05 per ounce, down $7.85 or 1.4 percent.
(Editing by Tom Jennemann)
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