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Metals Stocks: Gold prices fall as Yellen suggests a potential rise in U.S. interest rates

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Gold prices headed lower on Tuesday after U.S. Treasury Secretary Janet Yellen suggested that interest rates may need to rise to keep the economy from overheating.

The U.S. dollar extended its gains after Yellen’s comments, as measured by the ICE U.S. Dollar Index DXY, which up 0.4% at 91.311. A stronger buck can undercut demand for assets priced in the currency.

In an interview with the Atlantic that was recorded Monday and aired Tuesday, Yellen said, “It may be that interest rates will have to rise somewhat to make sure that our economy doesn’t overheat, even though the additional spending is relatively small relative to the size of the economy.”

The “gold market turned around instantly with even a hint of higher interest rates in policy plans,” Jeff Wright, chief investment officer at Wolfpack Capital, told MarketWatch. “Yellen holds a lot of influence” even though she’s no longer a part of the Federal Reserve.

Earlier, the gold market was “seeing some safe-haven interest as U.S. equities pulled back and tensions rise between China and Taiwan,” but after the Yellen quote, “any positive movement for gold evaporated,” said Wright.

June gold
GCM21,
-0.90%

was off $19.10, or 1.1%, at $1,772.70 an ounce, following a 1.4% gain on Monday that helped the metal notch the highest settlement for a most-active contract since April 21, FactSet data show.

July silver
SIN21,
-1.95%

dropped 73 cents, or 2.7%, to trade $26.24, following a 4.2% gain that drove gold’s sister metal to its biggest single-day point and percentage gain and highest finish since February.

Gold prices had been making modest moves before Yellen spoke, and had found some support from risk-off sentiment on the back of a decline in the U.S. stock market.

U.S. benchmark stock indexes traded lower Tuesday amid heavy losses for technology-related shares.

Among the other metals traded on Comex, palladium was a standout, as prices based on the most-active contracts touching an intraday record above $3,000 an ounce and they were on track to notch another record high settlement.

June palladium
PAM21,
-0.30%

fell 0.5% to $2,968 an ounce after trading as high as $3,019. The intraday high marked a fresh record high, according to Dow Jones Market Data.

With very strong U.S. vehicle sales reported Tuesday, “non-palladium demand expectations are ramped up,” said analysts at Zaner. Palladium is used in catalytic converters for gasoline-powered vehicles.

Ford Motor Co.
F,
-2.19%

said Tuesday that total U.S. April vehicle sales rose 64.8% from a year ago to 197,813 vehicles.

Meanwhile, July platinum
PLN21,
+0.13%

tacked on 0.1% to $1,230 an ounce and July copper
HGN21,
+0.10%

was down 0.1% at $4.52 a pound.

Read: The world risks ‘running out of copper’ — and here’s how high prices may rise as the economy reopens, BofA warns

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