Gold Falls as US December Rate Hike Still in Cards

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.”

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