Fear of Rate Hike Drives Investors Out of Gold

December Comex Gold futures plunged on Monday as investors dumped gold out of fear of an earlier than expected interest rate hike by the U.S. Federal Reserve. The initial break was in reaction to Fed Chair Janet Yellen’s hawkish comments last Thursday. She said that she anticipates an interest hike by the end of the year.

Gold weakened further along with the EUR/USD and GBP/USD after the U.S. Commerce Department reported a healthy rise in consumer spending in August. Losses may have been limited by lower-than-expected personal income data. Consumer spending advanced 0.4 percent compared to July, when spending also increased by 0.4 percent. Traders were looking for a reading of 0.3%.

Personal income was up 0.3 percent in August, helped by a hike in wages and salaries. This was below the 0.5 percent gain in July, however. The estimate called for a 0.4% increase.

An inflation gauge favored by the Fed was unchanged in August. Core inflation was up 0.1 percent recently and prices have risen only 0.3 percent over the past 12 months. Core inflation is currently running at a 1.3 percent annual pace, far below the Fed’s target of 2 percent.

Commodities and currencies fell further after William Dudley, president and CEO of the Federal Reserve Bank of New York said the central bank will likely raise interest rates later this year. He did nothing to calm the nerves of traders when he added that although investors want certainty on when rates will be hiked, that is not possible to deliver.

Dudley also reiterated the Fed’s decision that rate increases will be based data dependent, rather than on the calendar. He said the economy was doing “pretty well” and that if it continues on this path it could make a strong case for a liftoff.

Crude oil finished lower due to weaker equity markets. Stocks were mostly lower on Monday after fresh evidence surfaced showing the slowdown in China’s economy was expanding. Global equity markets sold-off after China reported its August industrial profits fell 8.8% from a year earlier. This was worse than July’s 2.9 percent decline. For the first eight months of the year, profits slid an annual 1.9 percent.