Gold miners were poised for their biggest one-day drop in more than a month on Tuesday, as more hawkish expectations on US rate rises saw the dollar strengthen and prices for the yellow metal weaken.
The precious metal fell more than 2 per cent to $1,282.07 a troy ounce as upbeat US economic data and hawkish remarks from Cleveland Fed president Loretta Mester — a member of the monetary policy setting Federal Open Market Committee — pushed the greenback higher.
The dollar index, a gauge of the US dollar against a basket of peers, rose 0.8 per cent. As gold is dollar-denominated, strength in the currency makes it more expensive for foreign buyers.
Moreover, investors again began to eye the prospects of a rate rise by the Federal Reserve this year, which would make gold less attractive because it offers no yield. “Fed commentary has become more hawkish over the past few days, and combined with better than expected manufacturing data that has helped push December rate hike odds above 60 per cent,” said Dennis DeBusschere, strategist at Evercore ISI, referring to data released on Monday that showed the factory sector revved up more than forecast last month.
Federal funds futures imply a 62.7 per cent chance of a rate rise in December.
“This is very much a technical move (for gold) where we’ve breached the 100-day moving average,” said Bart Melek, strategist at TD Securities, pointing to a few other factors in play. He added: “There has also been a ramp up in short-term and long-term yields on the back of the polls that show [Republican presidential candidate] Donald Trump is further away from the presidency.”
The NYSE Arca gold miners index, consisting of 39 global miners, was down 5 per cent.
Barrick Gold shares fell nearly 8 per cent to $16.03, Kinross Gold shares tumbled more than 10 per cent to $3.69, Goldcorp shares fell 7 per cent to $14.65 while Newmont Mining shares slid 7 per cent to $35.40.
Meanwhile, the S&P 500 US utilities sector fell 2 per cent. AES Corp was the biggest decliner, falling 3.9 per cent to $11.99. Shares in American Water Works fell 2 per cent to $72.51, NiSource shares fell more than 3 per cent to $22.87.
Utilities declined for the eighth consecutive day in what would be the longest losing streak in a month and a half. The fall has coincided with several upbeat economic reports that have left some strategists feeling more confident the Federal Reserve will raise its benchmark interest rate in December.
But the sector, which benefits in a low interest rate environment and had rallied in the first six months of 2016 driven by yield-hungry investors seeking its fat dividends, has given up those gains as investors eye the upcoming Fed meetings.
The sell-off in shares of gold miners and utilities arrived as US stocks fluctuated between gains and losses. By midday, the S&P 500 was 0.2 per cent lower at 2,157.43, the Dow Jones Industrial Average slid 0.1 per cent to 18,228.40. The Nasdaq Composite was flat at 5,303.75.