Gold declined to a four-week low and investors cut their holdings in bullion-backed funds to the lowest in two weeks as traders gave even odds that the Federal Reserve will raise interest rates in December.
The probability that U.S. policy makers will increase borrowing costs this year has risen to 50 percent, from 43 percent a month ago, according to Fed-fund futures data. Higher rates diminish the metal’s appeal because bullion doesn’t pay interest or give returns like other assets such as bonds or equities.
Fed officials signaled last week that they’re still considering tighter monetary policy this year, surprising some investors who had been buying gold on speculation that a spate of uneven economic data and slowing growth in China would delay the move. The metal has dropped almost 4 percent in London this year, set for a third straight annual decline.
“Some of those who had previously penciled in a March increase appear to have now chickened out,” Neil Meader, a London-based precious metals consultant at Metallis Consulting Ltd., said by phone. “That seems the most obvious explanation for the correction in the gold price.”
This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.