Gold price drops 2% on dollar after first Fed rate rise
New York (Dec 17) Gold fell two percent on Thursday, as the dollar surged after the Federal Reserve increased U.S. interest rates for the first time in nearly a decade and hinted at more increases in 2016.
The U.S. central bank raised the range of its benchmark interest rate by a quarter of a percentage point on Wednesday.
The move sent the dollar up to a two-week high against a basket of leading currencies, while spot gold was down 1.8 percent at $1,052.90, less than $15 above a near-six-year low hit earlier this month. U.S. gold futures for February delivery were down 2.3 percent an ounce at $1,052.10.
A stronger U.S. currency makes gold more expensive for foreign holders.
"The hints of further rate hikes moved the dollar because the market had priced in 2-3 more rate hikes in 2016," Citi strategist David Wilson said.
Gold has slumped nearly 10 percent this year, largely on uncertainty around the timing of the rise and on fears that higher rates would hit demand for the non-interest-paying metal.
"What we have seen this year in gold is largely going to continue but without the excitement of 'will the Fed or won't the Fed'," ICBC Standard Bank analyst Tom Kendall said.
The metal had rallied before the Fed decision on Wednesday and ended the day up 1.2 percent, before retreating on Thursday.
Further trouble for gold could come from continued weakness in other commodities, notably oil, which fell 5 percent on Wednesday on oversupply worries and continued to ease on Thursday, mostly on dollar strength.
Gold is usually seen as an hedge against oil-led inflation and a lack of inflationary expectations removes another reason for investors to gain exposure to the metal.
With the Fed's much anticipated first rate hike out of the way, the focus now shifts to the pace of future rate increases.
The rate forecasts, or dot points, from Fed members were a little higher than many expected with 100 basis points of hikes pencilled in for next year and a terminal rate of 3.5 percent.
"Everything that the Fed said yesterday suggests that money looking for a home, looking for yield, is going to continue to prefer equities," ICBC Standard Bank's Kendall said.
"It is too early for valuation arguments for gold or commodities to carry much weight."
Other precious metals also took a hit from a stronger dollar. Palladium fell nearly 3 percent to a session low of $552.22 an ounce, while silver was down 0.7 percent at $14.08 and platinum dropped 1.5 percent to $860.34.
Source: CNBC
