GOLD: growing expectations for a U.S. interest-rate hike next month dulled demand for the metal

Gold futures dropped on Tuesday to their lowest settlement since mid-March, as strength in the dollar and growing expectations for a U.S. interest-rate hike next month dulled demand for the metal.

Rising interest rates have been taking the wind out of gold’s sails. Combine this with the fact that the VIX [CBOE Volatility Index] VIX, +1.94% continues to hibernate at its worst and you end up with lower gold prices.

Measures of volatility on Wall Street have fallen toward historic lows following the removal of the overhang of worries about a presidential election in France. Emmanuel Macron, who is viewed as less destabilizing to the European Union, won Sunday’s election.

In the short term, the U.S. dollar has “started to show some life, but I’m not so sure it will have staying power,” said Koos.

“The big signs for gold are going to be a combination of interest-rate movement and stock market fear as we enter the seasonally weak months of the year (May 1 through Halloween),” said Koos. “If stocks start to stumble toward the end of this month and interest rates revert to their mean, we could see some temporary upside pressure to the yellow metal.”

Investors have been increasingly pricing in a U.S. rate increase next month, with fed-funds futures recently showing that markets are pricing in an 88% chance of a rate increase at the Fed’s mid-June meeting, according to CME data.

Higher rates can make precious metals, which don’t offer a yield, less appealing.

In exchange-traded funds, the SPDR Gold Trust GLD, -0.60% and the VanEck Vectors Gold Miners ETF GDX, -0.09% were down 1%, while the iShares Silver Trust SLV, -0.71% fell 1.2%.

Bloomberg