Gold Falls More As Fed Is Poised To Raise Rates

Prices were pressured by upbeat USA economic data and comments from Federal Reserve Chairwoman Janet Yellen, which indicated a likely interest-rate increase later this year.

United States Federal Reserve chair Janet Yellen said yesterday that the USA central bank remains on track to raise interest rates this year, as its domestic economy continues to improve despite turmoil overseas.

She made a similar statement on Wednesday during an appearance before the House Financial Services Committee, and on Friday in a speech to the City Club of Cleveland (http:// www.marketwatch.com/story/yellen-says-a-rate-hike-likely-to-be-needed-this-year-2015-07-10).

The Fed does not want to wait until 2016, according to Yellen, as the U.S. economy is growing again after its first-quarter slump.

If either Greece or China created “substantial risks”, it could delay a Fed rate increase, she said.

Analysts, including those within the Fed, have warned that the central bank likely will face market volatility when it moves to raise interest rates from zero, where it has held them since 2008 in an effort to stimulate the economy. She added that it is critical for the Fed to maintain its discretion over systemically important banks should the SIFI threshold change.

Both Sens. Robert Menendez, D-New Jersey, and Charles Schumer, D-New York, told Yellen that with inflation at such low levels now, it would be a mistake for the Fed to begin raising interest rates too quickly.

But Yellen said on Thursday the Fed should be absolutely sure that quite simple fasten money plan also… Inflation is now running lower than the pace the Fed believes is optimal for a healthy economy.

Yellen said the Fed is seeking to cooperate with the committee and that complying with the subpoena would interfere with an existing criminal investigation by the Justice Department.

“If anyone is trying to sweep this under the rug, it is the Fed”, said Rep. Sean Duffy, R-Wisconsin. Earlier, Japan’s Nikkei rose 0.7 percent, Shanghai stocks rose 0.5 percent and MSCI’s broadest index of Asia-Pacific shares outside Japan was up 0.3 percent.

“This leads us to conclude that most of gold’s declines based on a rate rise have already occurred, and that gold’s reaction to the rate hike – whenever it comes – and subsequent hikes, may be muted or short-lived”, Steel said in a note.

In her semiannual testimony to the U.S. Congress on Wednesday, Yellen delivered an upbeat speech on the USA economy and cited improvement in the labor market.

While she sees “tentative signs that wage growth has picked up, it continues to be relatively subdued, consistent with other indications of slack”, she said.

But she described business investment and export sales as weak.

“We can’t completely ignore what is happening in the markets”, she said.