New York - Gold dropped after the Federal Reserve’s first interest-rate increase in almost a decade strengthened the dollar, curbing the appeal of owning precious metals.
The US central bank on Wednesday unanimously voted to raise borrowing costs by a quarter of a percentage point. Higher rates reduce the attractiveness of holding bullion, which doesn’t pay interest or give returns like assets such as bonds or equities.
Gold slumped to a five-year low earlier this month as traders bet that policy makers would raise rates at the latest meeting. Yesterday’s decision was the culmination of a year-long effort to prepare investors and consumers for the end of an unprecedented era of ultra-easy money. Fed Chair Janet Yellen emphasised further tightening would be slow.
“The Fed’s move was mostly in the price,” Georgette Boele, an Amsterdam-based analyst at ABN Amro Bank, said by e-mail. “Prices will still go lower, but in the near term, moves may be limited.”
Gold price
Gold for immediate delivery lost 0.5 percent to $1, 066.59 an ounce by 10:43 a.m. in London, according to Bloomberg generic pricing. The metal, down almost 10 percent this year, is headed for a third straight annual decline.
Bullion typically moves inversely to the dollar, which rose 0.4 percent against a basket of 10 major currencies. Fed policy makers forecast that the short-term rate will rise to 1.375 percent at the end of 2016, implying four quarter-point increases in the target range next year, based on the median number from 17 officials.
“It’s what the Fed does next that the market will be focused on, and that largely depends on economic and financial market developments,” Jordan Eliseo, chief economist at trader Australian Bullion in Sydney, said by e-mail. “We doubt very much they’ll hike four more times in 2016, and expect too see bullion prices strengthen.”
Seventeen of 28 traders and analysts surveyed by Bloomberg said the precious metal will rise next year, with a median year- end estimate at $1 200 an ounce. In four of the past seven times the Fed began raising rates, gold was higher six months later, according to Credit Suisse Group.
Investors have been selling from gold-backed funds. Holdings in exchange-traded products fell to 1,463.1 metric tons on Wednesday, the lowest since February 2009, data compiled by Bloomberg show.
Silver slipped 0.7 percent to $14.0831 an ounce in London. Palladium slumped 2.3 percent to $558.30 an ounce and platinum declined 1.6 percent to $859.
BLOOMBERG