Gold prices have fallen to their lowest level in six weeks on fears that the US economic recovery will push up interest rates sooner than most investors had expected.
Gold for April delivery, the most active contract, on Wednesday slipped $US8.00 to close at $US1,303.40 a troy ounce on the Comex division of the Nymex.
Gold prices have fallen six per cent since March 14 after the Federal Reserve appeared to suggest it may begin raising rates sooner than expected, a move that would hurt gold’s attractiveness as a hedge against inflation.
Also, investors have mostly shrugged off the recent sharp rhetoric between Russia and the West in the wake of Russia’s annexation of Ukraine’s Crimea region. European nations and the US have imposed sanctions on Russia, but they have refrained from any military response to the events in Ukraine.
Some investors buy gold to protect their wealth from geopolitical uncertainty, but sell it when these fears subside.
“It is difficult to come up with a reason for buying gold here,” said Peter Hug, global trading director at Kitco Metals.
“Assuming there are no further geopolitical flare-ups, gold may have a hard time staying at these levels.”
Some investors, however, believe tensions in Eastern Europe are unlikely to subside in the near term and may lend support to gold prices.
On Tuesday, the Group of Seven (G7) leading nations disbanded the G8 by suspending Russia’s membership in retaliation for its annexation of Crimea, but held off on broadening already existing economic sanctions.
Russia has unsettled its neighbours by massing troops along Ukraine’s eastern border in what Moscow claims is part of a routine troop exercise.
“Things have calmed down somewhat, but the situation can still blow up at any time,” said Bill O’Neill, principal at LOGIC Advisors.
“Gold is sensitive to that.”
Palladium prices lost ground for the second straight day as traders continued to lock in gains after a rally that saw the precious metal hit its highest level in two years on Friday.
Palladium for June delivery, the most active contract, fell $US8.25, or 1.1 per cent, to close at $US781.15 a troy ounce on the New York Mercantile Exchange.
Palladium had rallied 11 per cent this year as some investors feared that a trade embargo against Russia would limit supply.
Russia accounts for about 40 per cent of global palladium output, and traders worry that possible trade sanctions from the US and Europe could reduce supply of the metal that is used in car exhaust filters and industrial catalysts.