Gold falls as dollar advances; all eyes on Fed rate hike

26/07/2016 05:27 AST

Gold headed for the third decline in four sessions amid rising speculation that the Federal Reserve will raise US interest rates this year. Fed policy makers meet Tuesday and Wednesday.

Signs of strength in the US economy have prompted traders to increase odds of a rate increase by year-end to 47 per cent, from 41 per cent a week ago and about 12 per cent at the beginning of the month.

Higher rates are typically negative for gold because the metal doesn’t pay interest. Gold’s 25 per cent rally in the first half of this year has sputtered in July on Fed rate concerns and a stronger dollar, which cut demand for bullion as an alternative asset.

The Bloomberg Dollar Spot Index has posted three straight weekly gains. Purchases in exchange-traded funds backed by gold have slowed after touching a three-year high on July 11, data compiled by Bloomberg show.

“The chatter about an interest-rate hike is working its way back into the system, and that’s why gold has been down,” Phil Streible, a senior market strategist at RJO Futures in Chicago, said in a telephone interview.”The dollar also has been taking the steam out of the commodities rally.”

Gold futures for December delivery dropped 0.8 per cent to $1,320.90 an ounce at 10:05 am on the Comex in New York. Silver futures for September delivery dropped 1.3 per cent to $19.435 an ounce on the Comex.

On the New York Mercantile Exchange, platinum and palladium fell. Speculators cut their record bullish bets on COMEX gold futures and options for a second straight week, US Commodity Futures Trading Commission (CFTC) data showed on Friday. Even so, they remain highly elevated. “In absolute terms net long positions are still at a very high level, meaning that there is further correction potential for the gold price from this side,” Commerzbank said in a note. “A massive overhang of bets on rising prices is also hanging over silver like the sword of Damocles,” it added. Silver, which fell about 3 percent last week, was down 1.1 percent at $19.37. Platinum was 0.5 percent lower at $1,071.60 an ounce. Palladium, which hit a near nine-month high on Friday, was down 0.1 percent at $679.45.

The Gulf Today