Analysts believe that the long-term trend for gold remains strongly bearish as the Fed interest rate increase came despite expectations for a delay in the rate hike until 2016.
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Spot gold was up 0.3 per cent at $1,055.70 an ounce at 1033 GMT, while USA gold futures for February delivery were up $5.70 an ounce at $1,055.30.
– The dollar rose smartly yesterday after the US Federal Reserve raised interest rates for the first time in nearly a decade. It is a well-known fact that higher rates tend to weigh on gold, as it provides no yield and thus struggles to compete with interest paying assets in the wake of rising borrowing costs. Now that it is out of the way, attention is turning to the pace of further increases.
Bullion investors are contemplating prospects for the progressive tightening of US policy through next year after Fed Chair Janet Yellen said subsequent rate increases would be gradual, with officials watching for evidence of higher inflation. “The huge gold rally after the December non-farm payrolls that signalled a rate hike has turned into a total red herring as it gets crushed on the rate hike itself”. “Next year the macro picture is looking a little less negative for gold and precious”, Mitsubishi analyst Jonathan Butler said.
Gold futures on the COMEX division of the New York Mercantile Exchange rose on Friday as the USA dollar fell and short traders took profits.
Gold and the dollar typically move in opposite directions, which means if the dollar goes up, gold futures will fall as gold, measured by the dollar, becomes more expensive for investors holding other currencies.
“The Fed, from its forecasts, is anticipating four rate rises next year”.
Analysts say the metal could revisit $1,000 U.S.an ounce for the first time in six years if it breaks below its early December low at $1,045 U.S.an ounce.
The market has been “a bit schizophrenic” in reaction to the Fed’s decision to end an unprecedented era of ultra-easy monetary policy, said Chuck Jeannes, chief executive officer of Goldcorp Inc., the world’s most valuable miner of the metal.
Holdings in exchange-traded products backed by gold fell to 1,463.05 metric tons on Wednesday, the lowest since February 2009, data compiled by Bloomberg show. That brings its monthly outflow to 25 tonnes.
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Silver lost 0.8 percent and palladium dropped 1 percent in Asia on Thursday as the Bloomberg Dollar Spot Index gained for a sixth day.
