World Economy

Fed Rate Hike Rumor Hits Gold Market Hard

In China, bullion of 99.99% purity fell 1%.In China, bullion of 99.99% purity fell 1%.

Gold’s getting hit from all directions. Bullion’s heading for the worst run of weekly losses in more than a year as the Federal Reserve gears up to hike rates, US equities at record levels lure money out of the haven and fund holdings wither.

Prices are set for a fifth weekly loss, the longest run since November 2015, to erode an annual gain. Bullion for immediate delivery lost as much as 0.5% to $1,165.27 an ounce, near a 10-month low, and traded at $1,169.55 in Singapore, according to Bloomberg generic pricing.

The precious metal is ending 2016 on the ropes as investors price in the Fed’s probable move next week, as well as the likelihood of further hikes in 2017, which has boosted the dollar. The S&P 500 and the Dow Jones Industrial Average are at all-time highs amid speculation president-elect Donald Trump’s policies will spur growth. Investors are also assessing the European Central Bank’s decision on Thursday to tweak its bond buying.

“Gold has absorbed a lot of bad news in the form of a rising US dollar in particular, and rising interest rates and bond yields,” Ric Spooner, chief market analyst at CMC Markets in Sydney, said by phone. “One of the interesting things will be the reaction to what looks to be the almost-certain increase in interest rates by the US Fed next week.”

Investors see a near 100% probability policy makers will raise the benchmark rate at their Dec. 13-14 meeting for the first increase of the year.

 Holdings Slump

The embrace of risk by investors is spurring a selloff in bullion holdings. Assets in gold-backed exchange-traded funds contracted for a 20th straight day as of Thursday, the longest stretch since May 2013. Assets fell 3.3 metric tons to 1,839.4 tons, the lowest since June, data compiled by Bloomberg show.

“The continued rally in risk assets poses a major headwind for precious metals,” Jordan Eliseo, chief economist at gold trader and refiner Australian Bullion Co., said in an e-mail. “Softness in physical markets, plus the expected rate hike from the Fed, whilst largely priced in, are also holding gold back, though the market looks oversold on a short-term basis.”

In China, bullion of 99.99% purity fell 1% to 265.85 yuan ($38.53) a gram on the Shanghai Gold Exchange. On the Shanghai Futures Exchange, gold for June delivery declined 0.2% to 269.30 yuan a gram, while silver slid 0.3% to 4,238 yuan a kilogram.

Spot silver lost 0.2%, palladium dropped 0.2% and platinum was little changed.

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