Gold Price Down on Worries About Fed Policy Shift
New York (Nov 2) Gold prices fell on Monday, extending their three-week lows, as investor anticipation of tighter monetary policy in the U.S. continued to sap interest in the precious metal.
The most actively traded contract, for December delivery, was recently down $7.80, or 0.7%, at $1,133.60 a troy ounce on the Comex division of the New York Mercantile Exchange.
Investors have been slashing their gold holdings after Federal Reserve officials last week sent their clearest signal yet that a December interest-rate increase remains a viable policy option. Fed officials said they would use the year's final policy-setting meeting to assess whether the U.S. economy had improved enough to warrant higher rates. Gold doesn't pay interest and would struggle to compete with interest-bearing assets like Treasury bonds once rates climb.
"We had a series of disappointments that investors didn't expect," said George Gero, a senior vice president with RBC Capital Markets Global Futures.
The Fed's communiqué countered the recent stream of lackluster U.S. economic data that had led many investors to wager on a prolonged period of low interest rates.
Fed-funds futures, used by investors and traders to place bets on central- bank policy, on Monday showed a likelihood of 47% that Fed officials will raise interest rates at its Dec. 15-16 policy meeting, according to data from CME Group.
The likelihood was 8% a month earlier.
"Nobody was expecting the Fed to raise rates this year when the predominant opinion centered around next March," Mr. Gero said.
Still, analysts at Barclays said they maintain their forecast for the Fed to stand pat on rates this year and make its move in March 2016.
"We expect the softening of inflation toward year-end to keep the committee on hold this year. The data over the next two months, especially on inflation and employment, will be critical for determining the timing of liftoff and whether December liftoff is possible," they said.
"If the Fed takes no action in the December meeting, gold could be supported."
Gold traders now are training their sights on the October U.S. employment report, due out Friday. The closely watched indicator of U.S. labor-market health is a key input into the Fed's decisions on monetary policy.
"If we get the numbers the Fed is looking for, the rate hike becomes more real," RBC's Mr. Gero said.
Source: WSJ
