Gold Falls As Fed Rate Hike Speculation Mounts

Gold fell from a three-week high as a stronger dollar and expectations that U.S. policy makers will raise borrowing costs cut demand for the metal.

Higher interest rates reduce the appeal of gold, which generally offers returns only through increasing prices. The effects of weaker economic growth abroad are “likely to be quite limited” in the U.S., according to minutes of the Federal Reserve’s October meeting released last week. The Bloomberg Dollar Spot Index reached a five-year high today.

“Price risk remains skewed to the downside, given our expectations for the dollar to strengthen and Fed to start hiking rates in June,” Suki Cooper, a New York-based analyst at Barclays Plc, wrote in an e-mailed report.

Gold for February delivery lost 0.4 percent to $1,193.40 an ounce by 7:35 a.m. on the Comex in New York. Bullion for immediate delivery declined 0.6 percent to $1,194.84, according to Bloomberg generic pricing.

Futures trading volume on the Comex was 15 percent above the 100-day average for this time of day, data compiled by Bloomberg show. Almost 30 percent of 938 investors surveyed by Barclays in a recent survey expected gold to trade below $1,150 by the end of March.

Switzerland holds a referendum on Nov. 30 to require the Swiss National Bank to hold at least 20 percent of its assets in gold, up from about 8 percent, and never sell any. Forty-seven percent of voters oppose the measure and 15 percent were undecided, according to a gfs.bern poll released last week.

Although approval, which is unlikely, presents a positive risk for gold, the potential for stronger bullion import restrictions in India could “damage” the metal’s price floor, Barclays’s Cooper said.

via Bloomberg

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza