Gold drops towards 6-year low on dollar, US rate hike view
November 23, 2015 (Source: Reuters) — Gold fell on Monday towards the near six-year low it reached last week on a robust dollar and upbeat comments from Federal Reserve officials on a possible U.S. rate hike next month.
Spot gold was down 0.5 percent at $1,072.30 an ounce by 1241 GMT, down for a 13th session in the 16 trading days this month. The metal hit $1,064.95 last week, the lowest since February 2010.
The dollar rose 0.1 percent against a basket of six major currencies, still close to an earlier seven-month high, hit as the euro fell on expectations that the European Central Bank will ramp up its monetary stimulus next month.
The euro could fall toward parity with the dollar in the months ahead as the Federal Reserve begins to lift interest rates while the ECB takes the opposite course.
A strong U.S. currency makes dollar-denominated gold more expensive for foreign holders.
Speculation that the Fed will lift interest rates for the first time in nearly a decade this year has intensified since the release of strong U.S. jobs data earlier this month. Comments from Fed officials have boosted that view.
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Higher rates tend to weigh on gold, as they lift the opportunity cost of holding non-yielding assets, while boosting the dollar.
“I wouldn’t be surprised to see prices fall below $1,000 as expectations of a rate hike affect sentiment,” Natixis analyst Bernard Dahdah said.
“There have been substantial outflows from ETFs and central bank demand only shows additions from gold producing countries, so generally speaking fundamental demand isn’t really there to support prices.”
Assets in SPDR Gold Trust, the world’s top gold-backed exchange-traded fund (ETF), slid 0.18 percent to 660.75 tonnes on Friday, the lowest since September 2008.
Hedge funds and money managers switched to a bearish position in COMEX gold contracts in the shortened week to Nov. 17, as prices fell to the lowest in nearly six years, U.S. Commodity Futures Trading Commission data showed on Friday.
There is a “strong case” for raising interest rates when Fed policymakers meet next month, as long as U.S. economic data does not disappoint, San Francisco Fed President John Williams said on Saturday.
The Fed should “soon” be ready to raise interest rates as U.S. central bankers grow confident that low inflation will rebound and that employment remains stable, William Dudley, the influential head of the New York Fed, said on Friday.
Other precious metals also tracked gold lower. Silver tumbled to $13.86 an ounce, the lowest since August 2009. Platinum was close to a seven-year low of $840.40 hit last week, while palladium fell 1.1 percent to $552.97 an ounce.
Raj Shah has professional experience working for over a half a dozen years at financial firms such as Merrill Lynch and First Allied Securities Inc., ... <Read more about Raj Shah>