Gold & Silver

Gold dips in choppy trade after Fed rate hike

Reuters Singapore | Updated on January 22, 2018 Published on December 17, 2015

gold

Gold slipped on Thursday, giving back some of its overnight gains, in choppy trading after the Federal Reserve raised US interest rates for the first time in nearly a decade.

The US central bank’s policy-setting committee has raised the range of its benchmark interest rate by a quarter of a percentage point, ending a lengthy debate about whether the economy was strong enough to withstand higher borrowing costs.

Gold has slumped nearly 10 per cent this year, largely on uncertainty around the timing of the US rate hike and on fears that higher rates would hit the demand for non-interest-paying precious metal.

Though the Fed decision removes an overhang for gold prices, the focus now shifts to the central bank’s pace of future rate increases.

Spot gold dipped 0.2 per cent to $1,070.70 an ounce by 0037 GMT. The metal had rallied before the Fed decision on Wednesday and managed to hold on to most gains post the central bank statement, ending the day up 1.2 per cent.

US gold fell 0.6 per cent to $1,070.50, following a 1.4 per cent gain in the previous session.

“Gold has been extraordinarily sensitive to perceived changes in monetary policy for many months,’’ said HSBC analyst James Steel.

“The rate rise may finally clear the deck and remove rate-related uncertainty from the bullion market.’’

The Fed action leaves gold positioned for some gains, largely from short-covering, but only modestly, he said.

Investors had increased their short positions on gold to record levels this month, although they have since edged back from that peak.

The dollar jumped nearly 1 per cent against a basket of major currencies on Thursday, a factor that could limit any short-covering gains.

The US central bank made clear the rate hike was a tentative beginning to a “gradual’’ tightening cycle, and that in deciding its next move it would put a premium on monitoring inflation, which remains mired below target.

Wall Street’s top banks expect the Fed to next raise US rates in the first quarter of next year, according to a Reuters poll.

The rate forecasts, or dot points, from Fed members were a little higher than many expected with 100 basis points of hikes pencilled in for next year and a terminal rate of 3.5 per cent.

The divergence between the Fed forecasts and the market could hurt gold prices as investors begin to align their views with the central bank.

Published on December 17, 2015
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