Gold fell, heading for its largest monthly decline in two years, as the Federal Reserve moved closer to boosting US interest rates for the first time since 2006.
While Fed policy makers refrained from signaling the timing of a rate rise after a two-day meeting, they described job gains as solid amid an improving economy, according to a statement Wednesday. The market expects a move as early as September.
Bullion is set for a 7.4 per cent plunge this month, the most since June 2013, after tumbling to the lowest level since 2010 last week. The metal fell as much as 1.1 per cent to $1,084.51 an ounce on Thursday, and was at $1,085.51 at 2:24 p.m. in Singapore, according to Bloomberg generic pricing.
“We’re still going to see gold trade on the back foot a little,” said Victor Thianpiriya, an analyst at Australia & New Zealand Banking Group in Singapore, who forecasts bullion may drop toward $1,000 an ounce in the next six months. “We are still probably headed a little bit lower.”
Fed policy makers expressed satisfaction with progress toward full employment and used one word — “some” — to describe the additional gains it wants before raising rates.
Increasing rates reduce the allure of gold as the metal doesn’t pay interest or give returns like other assets such as equities and bonds. Investors have cut their holdings in exchange-traded funds backed with bullion by 3.6 per cent this month, the most since December 2013.
Gold is likely to remain “weak in the near term with upside resistance near the psychological $1,100 an ounce level,” James Steel, an analyst at HSBC Securities (USA) Inc. in New York, said in a note after the Fed’s statement.
The metal for immediate delivery last closed above $1,100 on 21 July. Prices will sink to $984 before January, according to the average estimate in a Bloomberg survey of 16 analysts and traders. That would be the lowest since 2009.
“Gold is probably in the worst macro position it could be in: you have low inflation, high accommodation across the globe, US investment growth and the possibility of further increases in the US dollar,” Evan Lucas, a markets strategist in Melbourne at IG Ltd., said by phone. “For gold as a store of value, that’s a death cross.”
The Bloomberg Dollar Spot Index, a gauge of the greenback against 10 major peers, was little changed this week after a run of five weekly gains. It’s 19 per cent higher over the past 12 months while gold slumped 16 per cent.
Gold futures for December, the contract with the most open interest, dropped 0.7 per cent to $1,085.90 an ounce on the Comex in New York. In China, bullion of 99.99 per cent purity declined as much as 0.9 per cent to 217.6 yuan a gram ($1,089.96 an ounce) on the Shanghai Gold Exchange and was at 217.7 yuan.-Bloomberg