Gold Drops as Economic Outlook Strong

On Wednesday, gold price down to three-week low after an increasingly optimistic picture and a looming possibility that Federal Reserve may increase interest rate this year. Gold for August delivery was recently drop 1.3% at $1,315.00 a troy ounce on the Comex division of the New York Mercantile Exchange. The precious metal is on track to close at its lowest level since Brexit vote.

Investors withdraw money from gold as positive earnings results from some of the world’s biggest companies helped push the MSCI All-Country World Index higher. The Bloomberg Dollar Spot Index touched a seven-week high amid rising odds of a U.S. interest-rate increase this year, curbing the appeal of precious metals, which don’t offer yields.

The unexpected outcome of the U.K. referendum sent gold prices soaring, as investors fretted over the economic and political consequences of a Brexit. However, since the June 23 vote, worries about economic stability have largely eased.

“The dollar’s strength continues to pressure most commodities, particularly gold,” David Meger, director of metals trading at High Ridge Futures in Chicago, said in a telephone interview. “Safe-haven demand has been diminishing, obviously with equity markets moving to new record highs.”

“Gold had everything going for it. Now we’re in a period where things are a lot calmer…The perfect playing field that existed for gold is not in play for the short term,” said Bill O’Neill, a broker at LOGIC Advisors.

A strong economic outlook has also led to speculation that the Federal Reserve may be able to raise interest rates this year. Higher rates tend to weigh on gold prices, since the metal pays its holders nothing and struggles to compete with yield-bearing assets when borrowing costs rise.

While the Fed is expected to leave rates unchanged at its July policy meeting, officials may still look to raise rates by the end of the year. Traders will be watching the release of the policy statement on July 27 for more clues on the future path of interest rate increases.

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