Gold started off a crucial week on the back foot on Monday, as the Federal Reserve is expected to raise U.S. interest rates for the first time in nearly a decade.

Spot gold fell 0.2 per cent to $1,072.11 an ounce by 0042 GMT, after gaining 0.3 per cent on Friday.

In its last policy meeting of the year on December 15-16, the Fed is widely expected to hike U.S. rates for the first time since June 2006 on the back of a robust economy.

The US central bank is expected to raise rates by a quarter of a percentage point on Wednesday. Higher rates are expected to hurt demand for non-interest-paying bullion, while boosting the dollar.

Gold has already slid 9 per cent for the year, its third straight annual decline, in anticipation of higher rates. However, analysts are forecasting further declines in the next few months.

BofA Merrill Lynch had said on Friday it expected the gold price to drop to $950 early in 2016 due to the upcoming US rate hike.

Data last week showed options traders are boosting their bets that gold will soon drop to $1,000 an ounce. Speculators’ short positions in gold are near record highs.

Hedge funds and money managers’ reduced their bearish stance in COMEX gold in the week to December 8 as prices rallied modestly, US Commodity Futures Trading Commission data had showed on Friday, but were still not too far from the prior week’s record high.

In the physical markets, a bullion association in India has tied up with BSE Ltd, the countrý’s oldest stock exchange, to launch the nation’s first physical gold trading exchange.

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