METALS : Gold Plumbs Fresh 2018 Lows as Rate Worries Continue

By Amrith Ramkumar and David Hodari

Gold prices fell to a fresh 2018 low on Thursday, continuing a prolonged retreat even as investor jitters over a potential trade war stoked volatility in other markets.

Front-month gold for June delivery declined 0.3% to $1,267.20 a troy ounce on the Comex division of the New York Mercantile Exchange, its fourth drop in the past five sessions and its lowest close since Dec. 20. Prices have fallen 7% from their January peaks despite anxiety over protectionist trade policies and inflation prompting some safe-haven buying, with gold traders instead more focused on the impact of higher interest rates.

The precious metal struggles to compete with yield-bearing assets like Treasurys as rates rise. On Wednesday, Federal Reserve Chairman Jerome Powell said at the European Central Bank's annual policy conference that sturdy U.S. economic growth has built a strong case for continuing to gradually lift interest rates. The comments came a week after the Fed raised rates for the second time this year and forecast two more increases for 2018.

On Thursday, the Bank of England's rate-setting committee voted to keep rates on hold by a margin of six to three, indicating a mildly more hawkish bias compared with its previous meeting.

"All of that is boosting interest-rate talk, and that is a negative for gold," said George Gero, managing director at RBC Capital Markets. "Gold is unable to compete with higher interest rates at the moment."

The recent bearish signals in the gold market mark a contrast from earlier in the year, when gold stayed above $1,350 and some bulls called for prices to pierce $1,400 for the first time since 2013. Now, some analysts are betting prices could fall further if they get below $1,250 and economic growth in the U.S. remains strong.

Some investors are also wondering whether the recent rally in gold, which had its best year since 2010 a year ago, might come to an end. Mr. Gero noted that some money managers have recently been selling gold to cover margin calls on other assets, with other commodities also falling on trade and interest-rate fears.

"As the commodity accounts started to decrease, they've had to raise cash, and selling gold has been one of the easiest ways to do that," he said.

The dollar has stabilized on the back of escalating trade friction between the U.S. and China, making gold more expensive for overseas buyers. On Thursday, the WSJ Dollar Index, which tracks the dollar against a basket of 16 other currencies, edged down 0.3% from its highest level in nearly a year.

While a trade war would sting U.S. companies, their losses would be milder than those in other countries, according to Simona Gambarini, a commodities economist at Capital Economics.

Gold typically climbs in the wake of increased geopolitical tensions, but "the headwinds from Fed tightening are stronger than the potential positive impact on gold prices of trade tensions," Ms. Gambarini said.

Among base metals, front-month copper for June delivery edged down 0.7% to $3.0250 a pound. Prices have fallen 8.1% from their year-to-date highs hit earlier this month, hurt by unease over potentially growth-hindering trade policies.

Write to Amrith Ramkumar at [email protected] and David Hodari at [email protected]