Lukman Otunuga, research analyst at FXTM, said: “Regardless of the recent gains, this precious metal remains bearish and the growing optimism that the Fed will be raising United States interest rates next week should limit how high gold can advance”.
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Spot gold eased 0.7 percent to $1,066.50 an ounce by 1055 GMT, while US gold futures were down 0.8 percent at $1,067.20 an ounce.
With US interest rates widely expected to rise on Wednesday after the Fed concludes its two-day policy meeting, gold could be poised for further downside and new multi-year lows.
After the USA rate decision on Wednesday, the focus will shift to the Federal Reserve’s post-meeting statements – its economic forecasts, the policy committee members’ targets for the appropriate policy rate settings in the future, and the tone of the FOMC and Janet Yellen’s post-meeting communication, said Singapore’s DBS Bank in a Monday report.
“The consensus is that the Fed is going to finally press that button and will raise the interest rate tomorrow”, Ava Trade chief market analyst Naeem Aslam said.
BofA Merrill Lynch said on Friday it expected the gold price to slide to US$950 early in 2016 due to the upcoming U.S. rate hike, joining a chorus of other brokerages including Goldman Sachs that have predicted a drop to or below US$1,000. The strong US dollar also added some pressure to gold on Monday.
Cheaper oil chips away at the appeal of gold as an inflation hedge. Options data shows that investors have boosted bets that the gold price will soon drop to $US1,000 an ounce while assets in SPDR Gold Trust, the top bullion exchange traded fund, are at their lowest since September 2008. An unchanged decision would lead to a rise in bond prices that would accelerate as short positions are closed in a move known as short covering.
As for other metals, silver fell 18.9 cents, or 1.36 percent, to close at 13.695 dollars per ounce. Silver was at $13.73 an ounce after slumping to $13.6482 on Monday, the lowest since August 2009.
Gold wasn’t getting much support from the physical markets either.
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Bullion of 99.99% purity advanced 0.5% to 224.06 yuan a gram ($1,079 an ounce) on the Shanghai Gold Exchange.
