A hawkish stance by the US Federal Reserve hammered the gold market with spot and futures trades registering declines of as much as $20 on Thursday (4 May).
In a statement explaining its decision overnight, the Fed said it viewed "the slowing in growth during the first quarter as likely to be transitory" and continued to expect that "with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace".
The statement prompted speculation that the US central bank will raise interest rates in June. At 1:55pm BST, the Comex gold contract was down $20.20 or 1.62% an ounce to $1,228.30 an ounce, while spot gold was 0.75% or $9.32 lower at $1,228.85 an ounce.
FXTM chief market strategist Hussein Sayed said the positive tone struck by the Fed meant gold resumed its downtrend as dollar and Treasury yields across the curve bounced higher overnight.
"Fed comments were slightly surprising, especially as consumer consumption, inflation, and nonfarm payrolls all headed south in March. Having said that, I wouldn't fight the Fed and take an opposing view unless softening data continues, forcing the US central bank to change trajectory."
Meanwhile its latest quarterly market assessment, the World Gold Council (WGC) said demand for the yellow metal over the first quarter came in at 1,034 tonnes; a decline of 18% compared to the record first quarter of 2016
Inflows into Exchange Traded Funds (ETFs) totalled 109 tonnes which, although solid, were nonetheless a fraction of last year's near-record inflows. Slower central bank demand also contributed to the weakness. However, investment in bars and coins was healthy at 290 tonnes, an increase of 9% year-on-year, while demand firmed slightly in both the jewellery and technology sectors.
Alistair Hewitt, head of market intelligence at WGC, said the percentage decline had more to with the exceptionally high performance noted over the corresponding quarter last year.
"Although we did not see the record-breaking surges in ETF inflows experienced in Q1 2016, we have seen good inflows nonetheless this quarter, with strong interest from European investors ahead of the Dutch and French elections."
Elsewhere, Comex silver was down 0.88% or 15 cents at $16.40 an ounce, while spot platinum was 0.04% or 32 cents lower at $897.11 an ounce.
Away from the precious metal market, oil futures saw another intraday struggle as Brent – considered the global proxy benchmark – also fell below $50 per barrel, as traders continue to fret over rising US supplies.
At 2:18pm BST, the Brent front-month futures contract was down 1.91% or 97 cents to $49.82 per barrel, while the West Texas Intermediate (WTI) was 2.15% or $1.03 lower at $46.79 per barrel.
Bjarne Schieldrop, chief commodities analyst at Nordic Bank SEB, expects the US shale oil rig count to stay unchanged all through the second half of 2017, under the assumption that Opec does not restrain its production and the WTI mid-term price trades at the inflection point during that period.
"Where it will actually trade will of course depend on what Opec decides to do at their upcoming meeting on 25 May. If they decide to roll the current restrained production level of about 32m barrels per day (bpd) into second half 2017, then we will have a significant draw in global oil inventories."