Gold declines as investors zero in on outlook for inflation

Gold has retreated 9.3 per cent this year as the US economy improved.
Gold has retreated 9.3 per cent this year as the US economy improved. PHOTO: BLOOMBERG

SINGAPORE (BLOOMBERG) - Gold dropped on Monday (Dec 28) as investors weighed the outlook for inflation in the US for clues on the likely pace of interest rate increases by the the Federal Reserve in 2016.

Bullion for immediate delivery lost as much as 0.4 per cent to US$1,071.72 an ounce and was at US$1,073.77 at 11:50 am in Singapore, according to Bloomberg generic pricing. The metal gained 0.9 per cent last week as the US dollar fell.

Gold has retreated 9.3 per cent this year as the US economy improved, which prompted the Fed to tighten monetary policy in December for the first time in almost a decade. US central bankers have said that they will proceed gradually with additional moves next year. While a pickup in the pace of price gains may spur demand for gold as a hedge, rising inflation may induce higher rates, which typically hurt bullion.

"The market will be watching US inflation data closely," Huatai Great Wall Futures said in a note on Monday. A rise in inflation expectations will bolster the case for further Fed rate rises, impacting precious metals, the brokerage said.

The US central bank's preferred inflation index was at 0.4 per cent in November, a report showed on Wednesday. It has been below the Fed's 2 per cent target for more than three years as commodities including oil tumbled.

Holdings in global exchange-traded funds backed by bullion touched a six-year low of 1,458.19 metric tons on Dec 17. Assets were at 1,470.29 tons on Dec 23, data compiled by Bloomberg show.

In other metals markets, spot silver fell 0.7 per cent to US$14.2675 an ounce, while platinum rose 0.2 per cent and palladium gained 0.1 per cent.