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Gold in longest fall since November

After speculation that the Federal Reserve will raise interest rates as early as next month resulting in a stronger dollar, we see gold fall for a fifth day, the longest run of losses in six months.

The Bloomberg Dollar Spot Index was close to the highest since March after Fed Bank of St. Louis President James Bullard said he doesn’t expect a UK vote on European Union membership next month to have an affect on the US central bank’s decision.

Gold slumped 1.7 per cent last week, extending a drop from the highest in more than a year after minutes from the Fed’s April meeting indicated that US rates might be increased sooner than previously thought. We then see higher borrowing costs reduce the appeal of owning non-interest-bearing assets. This tends to strengthen the dollar and as a result cutting demand for gold as an alternative investment.

Jonathan Butler, a precious metals strategist at Mitsubishi Corp in London, said “ The surprisingly hawkish FOMC minutes last week, which highlighted a June rate rise is back on the cards, has seen the dollar and Treasury yields advance, making life tougher for gold”.

Furthermore we see the bullion for immediate delivery declined 0.5 per cent to $1,242.91 an ounce by 10:27 am in London, according to Bloomberg generic pricing.

An analyst at Citigroup Inc said in a report that while prices have dropped this month, it might prove an opportunity to “buy the dip.” The chances of a rate rise by July are now at 54 per cent, compared with 26 per cent at the start of May, Fed funds futures data show. Increasing chances of a rate hike in June are likely to have an effect on gold, Australia & New Zealand Banking Group said in a report.

However we can see that investors keep buying gold through exchange-traded products. Holdings rose 4.5 metric tonnes to 1,847.9 tonnes as of Monday, the highest since November 2013, data compiled by Bloomberg show.

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