Gold buckles on rising dollar, US rate prospects

Gold is getting trampled on. Bullion traded below US$1,200 an ounce as prospects for economy-boosting policies by United States President-elect Donald Trump help the US Federal Reserve gear up for a rate rise, hoisting the dollar to the highest level in more than a decade just as US equities hit records.

Bullion for immediate delivery fell as much as 0.5 per cent to US$1,182.95 an ounce in Singapore, according to Bloomberg generic pricing. Prices sank to US$1,181.84 on Wednesday, the lowest since February, and are down 7 per cent this month, the most since June 2013.

Investors in the metal that is meant to preserve wealth in troubled times have been blindsided as they grapple with the consequences of Mr Trump's plans to revitalise growth and boost infrastructure spending. That push comes as the Fed prepares to tighten interest rates next month, with better-than-estimated data on durable goods and manufacturing on Wednesday boosting the case for action. As the US dollar surges, gold holdings in exchange-traded funds (ETFs) are set for the biggest monthly drop in more than three years.

Assets in bullion-backed ETFs have contracted 85.5 tonnes this month, retreating to 1,902 tonnes, the lowest level since June, according to data compiled by Bloomberg. After shrinking for the past 10 sessions, the holdings are on course for the biggest monthly drop in tonnage terms since June 2013.

Gold's decline this month contrasts against gains seen earlier this year. Prices surged in the first two quarters as the Fed held off raising rates, ETF holdings jumped and investors reacted to unexpected political events, especially the Brexit vote. Bullion was little changed in the third quarter, before tumbling.

Spot silver closed at US$16.3685 on Wednesday, more than 20 per cent below the closing on Aug 2, meeting the common definition of a bear market. The metal fell 0.3 per cent yesterday to near the lowest level since June.

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on November 25, 2016, with the headline 'Gold buckles on rising dollar, US rate prospects'. Print Edition | Subscribe