Gold posts losses again as Yellen adds to rate-rise angst

Bloomberg

Gold looks very different than it did at the beginning of May. Along with platinum, palladium and silver, it is heading for the biggest monthly loss since November as investors anticipate higher borrowing costs in the U.S.
Bullion has pared this year’s rally after retreating more than 5 percent in May as the dollar rallied and investors raised bets on the Federal Reserve increasing interest rates as early as next month.
Higher rates curb gold’s appeal against interest-bearing assets. Chair Janet Yellen spoke on Friday at Harvard University, saying an increase in rates in the coming months may be appropriate. The comments come after a number of regional Fed presidents have indicated their willingness to tighten policy.
There are still voices of caution. Fed Governor Jerome Powell on Thursday laid out a clear argument for raising rates while stressing that global risks meant there’s no reason to hurry. Jeffrey Gundlach, chief executive of DoubleLine Capital LP in Los Angeles, predicts the Fed will refrain from raising in June unless traders in the futures market assign a probability of at least 50 percent to such a move.
“It looks like a rate hike is inevitable: whether it’s June or July, it seems like it’s baked in the cake and Yellen seems confident in her statement,” Phil Streible, a senior market strategist at RJO Futures in Chicago, said. “For certain, gold will be under pressure for the foreseeable future.”
Gold futures for August delivery dropped 0.5% to settle at $1,216.70 an ounce at 1:47 p.m. on the Comex in New York. The metal is down 5.7 percent this month. Fed officials will gather in Washington June 14-15 to decide whether to increase rates for the first time since December. Odds on the Fed increasing rates next month are 36 percent, while the probability of a move in July is close to 60 percent, according to Fed funds futures.
Citigroup last year won approval to trade Saudi Arabian equities, its first banking license since exiting the country in 2004, people with knowledge of the matter said in September. The bank is directly investing in companies listed on the Saudi Stock Exchange after the stock market opened to direct foreign investment last June.
The New York-based bank sold its 20 percent stake in the Saudi American Bank, now known as Samba Financial Group, to the state Public Investment Fund for $760 million in 2004, ending a business that it helped form in 1955. It has still won a role advising on some of the largest deals from the country, including Saudi Basic Industries Corp.’s acquisition of General Electric Co.’s plastics unit for $11.6 billion in 2007. It was also part of Saudi Aramco’s $10 billion loan in 2015.

Crude Plunge
Crude’s more than 50 percent plunge since the middle of 2014 is pushing governments across the region to dip into past savings, boost borrowings and cut spending, which is slowing economic growth. That has helped make regional assets cheaper, with Saudi Arabia’s benchmark index down 33 percent from a year ago and Dubai’s by 15 percent.
Mergers and acquisitions in the Middle East and Africa have declined 43 percent this year to $17.8 billion, according to data compiled by Bloomberg. Citigroup is the region’s third-biggest adviser for M&A transactions this year, including advising Saudi Basic Industries on finding a potential buyer for Sabic Innovative Plastics Holdings BV, according to the data.
“Regional mergers and acquisitions may not appear very active in terms of announced deals, but the pipeline is very strong and there are a lot of deals happening,” Iqtidar said, adding the bank is also seeing significant improvement in fees. “Saudi, Kuwait, and Egypt are offering the most exciting opportunities across sectors but the notable ones are in downstream oil and gas and petrochemicals, with healthcare and consumer products in the private sector space,” he said.
Several large family-owned businesses in the six-nation Gulf Cooperation, which includes Saudi Arabia and the U.A.E., are attempting to sell assets that they own outside the region as the sentiment in the Gulf is “cautious” given oil’s decline, Iqtidar said. They “are now ready to take some money off the table at reasonable valuations and diversify into other markets,” he said.