Gold catches a bug as the dollar’s surge shows no sign of abating and Fed rate rise looks all but a certainty
Gold has continued to fall this morning on the back of yet more highs for the US dollar, reaching lows not seen since February.
The currency’s strength combined with strong US data and minutes from the Federal Reserve’s Open Markets Committee (FOMC) to send gold far below the $1200/oz level.
In morning trading a small bounce pared some of the losses, but the commodity was still down, trading at around $1187/oz. In the last week gold has fallen 2.4 per cent, while it is down 6.8 per cent so far in the month.
A rate rise would theoretically hurt gold by making bonds more attractive. The tightening of monetary policy in reaction to the inflation expected from US President-elect Donald Trump's policies could also then make dollars more valuable, cheapening gold in dollar terms.
Expectations of an interest rate rise have reached fever pitch, with implied odds from futures markets of an increase at the Fed’s December meeting reaching 100 per cent, according to calculations by Bloomberg.
Read more: Dollar surge wipes shine off gold as prices dip to lowest level since May
The release of data on US durable goods orders showed a big jump in October to easily the highest growth rate of the year. The Federal Reserve has made it clear on multiple occasions that a rise could be appropriate “relatively soon”.
The FOMC minutes released yesterday then showed Fed officials arguing for a rate rise “to preserve credibility”.
Investors often seek refuge in gold as a relatively strong store of value in perilous economic times. This reached its height during the Eurozone crisis in 2012, when prices broke through the $1800/oz mark.
From that peak the metal rode a bumpy path down to a trough below the $1060/oz mark at the end of November last year, before rallying.