Gold Drops as USD Boosted by Fed Hike

Gold fell more than one percent on Thursday, as the dollar surged after the Federal Reserve increased U.S. interest rates for the first time in nearly a decade and hinted at more increases in 2016.

The U.S. central bank raised the range of its benchmark interest rate by a quarter of a percentage point on Wednesday.

The move sent the dollar up to a two-week high against a basket of leading currencies, while spot gold dipped as much as 1.3 percent to a session low of $1,058.44 an ounce and was down 1.2 percent at $1,059.76 by 1405 GMT, less than $15 above a near-six-year low hit earlier this month.

A stronger U.S. currency makes gold more expensive for foreign holders.

“The hints of further rate hikes moved the dollar because the market had priced in 2-3 more rate hikes in 2016,” Citi strategist David Wilson said.

Gold has slumped nearly 10 percent this year, largely on uncertainty around the timing of the rise and on fears that higher rates would hit demand for the non-interest-paying metal.

“What we have seen this year in gold is largely going to continue but without the excitement of ‘will the Fed or won’t the Fed’,” ICBC Standard Bank analyst Tom Kendall said.


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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