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Gold Hits 4-Week Low as Federal Reserve Rate Hike Looms, New US Home Sales Surge

May 24, 2016 at 18:59 by Andrew Moran

For the fifth consecutive session on Tuesday, gold futures declined, sinking to their lowest level in nearly a month.

Due to a looming interest rate hike by the Federal Reserve and positive US economic data, US June gold prices dipped 1.3%, or $16.70, to $1,234.80 per ounce at 13:40 GMT. Spot gold fell 0.9% to $1,236.81 per ounce.

After a strong start to 2016, gold prices have declined about 4%, month-to-date. Gold is poised to have its biggest monthly drop off since November.

Minutes released from its April 26–27 Federal Open Market Committee (FOMC) meeting suggested that central bank officials were hawkish about a rate hike next month. The upbeat attitude also sent the US dollar index higher on Tuesday.

Over the past week, a plethora of statements and remarks from Fed officials have highlighted general support for the gradual normalization of interest rates. Even with the US presidential election in sight, says John Williams, president of the San Francisco Fed, the central bank wouldn’t be deterred to hike rates.

“We’ve proven over and over again that we can act in presidential election years. We’ve done that before, we’ll do it again,” Williams said. “We’re about as apolitical as you can imagine.”

The yellow metal is sensitive to climbing rates because it increases the opportunity cost of owning the non-yielding metal and boosts the US dollar.

Copper, meanwhile, received a significant boost from the positive economic data on Tuesday. July copper prices jumped 1.2%, or 2.6 cents, to $2.08 per pound.

The other precious metals declined, however. July silver prices tumbled 0.5%, or 7.8 cents, to $16.345 per ounce. July platinum prices dipped $3.10 to $1,010 an ounce, while September palladium prices shed 1.4%, or $7.70, to $543.65 an ounce.

Gold stocks also took a beating during Tuesday’s trading session. The SPDR Gold Trust GLD fell 1.68%, while the VanEck Vectors Gold Miners exchange-traded fund declined nearly 5%.

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