October 11, 2016
Gold Drops as Investors Fret That Fed’s Gearing Up to Hike Rates
(Bloomberg) - Gold declined as investors factored in the increasing probability of the Federal Reserve raising U.S. interest rates this year, boosting the dollar and hurting bullion’s appeal after two days of gains.
The metal for immediate delivery lost as much as 0.3 percent to $1,255.70 an ounce, and was at $1,257.98 at 11:32 a.m. in Singapore, according to Bloomberg generic pricing. The drop pared this year’s advance to 19 percent.
Gold’s rally in the first half has run out of steam as tighter U.S. policy is expected by the end of 2016 after the Fed started hiking last December. Traders anticipate minutes of the Fed’s September meeting due on Wednesday will provide clues on how close policy makers are to deeming growth and inflation strong enough to merit a move. The Bloomberg Dollar Spot Index rose 0.2 percent to head for the highest close since July 26.
“Prices have likely been weighed by a combination of factors, including the improved sentiment for a December Fed hike and the surge in dollar strength,” said Jingyi Pan, a Singapore-based strategist at IG Asia Pte. “The outlook for gold appears to be a bearish one and another blow may be on its way with September’s Fed minutes.”
At the Sept. 20-21 meeting, three regional Fed presidents dissented from the vote to hold rates unchanged in favor of a rise, marking only the fourth time since 1992 that three voters broke ranks with a majority decision. The market will scan the minutes for clues of an imminent hike, according to Pan.
Futures prices signal the odds of an increase this December have climbed to 68 percent as of Monday, from 61 percent a week earlier. Three months ago, the outlook for tighter monetary policy at the Fed’s final policy-setting meeting of the year was barely above 20 percent.
Holdings in gold-backed exchange traded funds remained steady at 2,046.4 metric tons as of Monday, the highest since June 2013, according to data compiled by Bloomberg.
In China, bullion of 99.99 percent purity lost 0.2 percent to 272.78 yuan a gram ($1,263.97 an ounce) on the Shanghai Gold Exchange.
On the Shanghai Futures Exchange, gold for December delivery fell 0.3 percent to 273.30 yuan a gram, while silver advanced 0.2 percent to 3,984 yuan a kilogram.
On global markets, silver climbed 0.2 percent, platinum rose 0.1 percent and palladium declined 0.1 percent.