Gold prices fell to its lowest in nearly four weeks on Thursday as the Federal Reserve signalled it was on track to raise US interest rates again in December, driving the dollar to two-month highs versus the yen.
The metal is highly sensitive to rising US interest rates, which boost the cost of holding non-yielding bullion relative to other assets, while lifting the dollar, in which it is priced.
Spot gold was down 0.5% at $1,295.51 an ounce at 3.35pm, having earlier touched its lowest since late August at $1,292.84. US gold futures for December delivery were down $17.40 an ounce at $1,299. The metal has pulled back more than $60 an ounce since hitting its highest in more than a year earlier this month at $1,357.54.
“The opportunity cost of holding gold seems to be going up now, and that’s bad news for gold,” LBBW’s head of commodity research Frank Schallenberger said. “We went up to $1,350 so quickly, and now we have consolidation. With the wording from the Fed, that could go on for a while.”
“We will head down to $1,250 in the next couple of weeks, and then we’ll think again (once) people have digested the news on interest rates,” he said.
In a statement following its latest two-day policy meeting, the US central bank indicated it still expected one more increase by the end of the year in spite of a recent run of soft inflation readings. It also said it planned to trim the $4.2 trillion in bonds and other assets that it built up in the wake of the 2008 financial crisis in a bid to kick-start growth.
The dollar rose to a two-month high against the yen and extended gains against the euro on Thursday, while banking shares also drove European bourses higher.
From a technical perspective, gold is expected to steady around its late August low, according to analysts who study past price moves to determine the future direction of trade.
“We look for the market to stabilise between here and (its) recent low at $1,275.69,” Commerzbank said in a weekly note. “While above here we will maintain an upside bias. “Only a break below $1,251 would signal further slippage,” it said.
Among other precious metals, silver was down 0.9% at $16.97 an ounce, after falling to its lowest since 25 August earlier in the session at $16.89. Platinum was 0.2% lower at $938.75 an ounce, after hitting its lowest since late July on Wednesday, while palladium was up 0.1% to $910.97 an ounce. Reuters