Spot gold was up 0.5% at $1,056.10 a troy ounce in morning European trade, hovering near six-year lows.
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“Gold is trading in line with aggregates such as the dollar, as battered investors try to understand the implications of the new era of the Fed rates for gold”, Matthew Turner, an analyst at Macquarie Group Ltd.in London, said by phone.
Many traders were in short positions when the Federal Reserve decided on its much-anticipated interest rate hike at its Federal Open Market Committee (FOMC) meeting from Tuesday to Wednesday.
At 0948 GMT on Friday, COMEX gold for February delivery was up 0.41% or $4.30 at $1,053.90 an ounce, having declined from $1,075-levels prior to the Fed announcement – late on Wednesday – to $1,045-levels over the subsequent session. The precious metal is down 11% so far this year.
A new research note by ABN Amro says this relationship will continue to put pressure on the gold price going into 2016.
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.
HSBC, however, believe that gold will finally bounce back in 2016 after repeatedly hitting multi-year lows.
An increase in the Fed’s interest rate drives investors away from gold and towards assets with a return, as the precious metal bears no interest. That sent gold to $1,047.25 in the previous session, close to a near-six-year low. The last such occurrence was between mid-2004 and mid-2006, when gold jumped above 700 dollars from 400 dollars, while the U.S. central bank raised the federal funds rate 17 consecutive times. “If we can take the low out, which I don’t think is unreasonable, $1,033 is the next stop – that’s the high from 2008 – and then $1,006, and the $1,000 figure is really the level you should be talking about”, Credit Suisse analyst Christopher Hine said. Gold is often seen as a hedge against inflation.
When the cycle turns, gold will have its day again. Prices dropped seven of the past eight weeks as improving economic data boosted the US dollar, curbing the appeal of the metal as an alternative asset.
Since the heady days of 2011 when prices reached multiyear highs, gold has been falling steadily as slowing…
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“Gold will continue to weaken”.
