Gold poised for 3rd annual loss, 2016 outlook bleak

Gold was little changed on the last trading session of the year, but looked set to post its third straight annual loss.
Gold was little changed on the last trading session of the year, but looked set to post its third straight annual loss.PHOTO: AFP

SINGAPORE (REUTERS) - Gold was little changed on the last trading session of the year, but looked set to post its third straight annual loss, undermined by a robust US dollar and prospects of higher US interest rates.

Investors have sold off the metal, down about 10 per cent for the year, on fears that higher US interest rates would dent the appeal of non-interest-paying bullion.

Other precious metals have also been hit by the strength in the dollar and slump in gold, and were headed for sharp annual declines.

Spot gold edged up 0.2 per cent to US$1,062.50 an ounce by 0331 GMT on Thursday (Dec 31). Volumes were thin ahead of the new year holiday on Friday.

It slid to a near-six-year low of US$1,045.85 earlier in December.

"Next year too gold will be lower as US interest rates will keep going higher," said a bullion trader in Hong Kong, adding that this will put pressure on other precious metals as well.

Gold could drop to US$1,000 or below but could recover slightly in the second half of the year, he said.

The outlook for the metal does not look bullish heading into the next year.

Gold prices have been influenced a great deal by US monetary policy. The Federal Reserve increased US interest rates for the first time in nearly a decade in December, and is expected to hike rates at a gradual pace in 2016.

That could support the US dollar, which is on track to gain 9 per cent this year against a basket of major currencies.

A stronger greenback makes dollar-denominated gold more expensive for holders of other currencies.

"The pace of increasing interest rates is going to be slow but still that would depress gold prices," said Mark To, head of research at Hong Kong's Wing Fung Financial Group.

Physical demand in top consumers China and India will not be strong enough to support a price rally, he said.

Other fundamentals were also not supportive of an uptick in prices.

Assets of SPDR Gold Trust, the top gold-backed exchange-traded fund, are near a seven-year low, while short positions on COMEX gold contracts are close to an all-time high.

A bearish outlook for oil could pile more pressure on gold. Gold is positively co-related to oil as the metal is often seen as a hedge against oil-led inflation.

Among other precious metals, silver looked set to end the year down about 11 per cent.

Platinum was headed for a 27 per cent decline, its worst annual performance since 2008.

With a 31 per cent drop, palladium was the worst performer among the precious metals.