Tokyo - Gold fell after the US Federal Reserve ended the zero-interest-rate era and flagged a quartet of increases in 2016, boosting the dollar and keeping bullion on course for a third successive annual drop.
Gold for immediate delivery lost as much as 0.7 percent to $1 064.90 an ounce and traded at $1 067.65 at 11 a.m. in Singapore, according to Bloomberg generic pricing. The metal had ended 1.1 percent higher on Wednesday after the Fed announced liftoff.
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. Gold slumped to a five-year low earlier this month as the dollar climbed and investors reduced holdings in exchange- traded products.
“If the Fed is going to raise the rate four times next year, eventually higher US interest rates are very negative to the price of gold and also the higher US dollar is quite negative,” Bob Takai, chief executive officer and president of Sumitomo Corporation Global Research, said from Tokyo. “I am bearish on gold.”
US recovery
After years of near-zero rates to buttress the US recovery, the Federal Open Market Committee voted to set the new target range for the federal funds rate at 0.25 percent to 0.5 percent. Policy makers separately forecast an appropriate rate of 1.375 percent at the end of 2016, implying four quarter-point increases next year, based on the median number from 17 officials.
Bullion has room to drop further and prices may test the $1 000 level in the first quarter of 2016 and then decline to $900, according to Takai. The metal slumped to $1 046.44 on December 3, the lowest level since February 2010. It had peaked above $1 900 an ounce in September 2011.
Still, 17 of 28 traders and analysts surveyed by Bloomberg said the precious metal will rise in 2016, with a median year- end estimate at $1 200 an ounce, about 12 percent more than now. In four of the past seven times the Fed began raising rates, gold was higher six months later, according to Credit Suisse Group.
“It’s what the Fed does next that the market will be focused on, and that largely depends on economic and financial market developments,” Jordan Eliseo, chief economist at trader Australian Bullion in Sydney, said by e-mail. “We doubt very much they’ll hike four more times in 2016, and expect too see bullion prices strengthen.”
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. The assets are on course for another annual decline after contracting 9.2 percent in 2014 and 33 percent the year before that.
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. The US currency will continue to gain support as the Fed is intent on tightening policy more than anticipated by futures markets, according to Royal Bank of Scotland Group.
BLOOMBERG