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PRECIOUS-Gold slides to 10-1/2-month low on dollar's post-Fed surge
December 15, 2016 / 12:39 PM / 7 months ago

PRECIOUS-Gold slides to 10-1/2-month low on dollar's post-Fed surge

3 Min Read

* Dollar at 14-year peak after Fed ups 2017 rate hike
outlook
    * U.S. Treasury yields surge, hurting non-yielding metals
    * Silver at 6-1/2-month low, platinum at 10-1/2-month low
    * GRAPHIC-2016 asset returns: reut.rs/1WAiOSC

 (Updates prices; adds comment, second byline, NEW YORK
dateline)
    By Marcy Nicholson and Jan Harvey
    NEW YORK/LONDON, Dec 15 (Reuters) - Gold fell more than 1
percent to a 10-1/2-month low on Thursday after the Federal
Reserve sounded an unexpectedly hawkish note on U.S. interest
rates, sparking a surge in Treasury yields and sending the
dollar to a 14-year high.
    Lifting the federal funds rate to a 0.50-0.75 percent range
on Wednesday, the U.S. central bank flagged a faster pace of
hikes next year as it geared up for the incoming Trump
administration's pledges to cut taxes and boost spending.
 
    That sparked a rally in the dollar, pressuring assets priced
in the currency, while U.S. Treasury yields soared, lifting the
opportunity cost of holding non-yielding gold.  
    "The Fed was more hawkish than expected, which re-started
this dollar rally," ABN Amro analyst Georgette Boele said. "With
yields rising in the United States and the dollar massively up,
that's the worst possible combination for gold."
    Spot gold hit a 10-1/2-month low of $1,122.35 an
ounce, and was down 1.2 percent at $1,130.72 by 3:03 p.m. EST
(2003 GMT). U.S. gold futures for February delivery
settled down 2.9 percent at $1,129.80, showing a stronger
decline as it had settled positive on Wednesday prior to the Fed
statement.
    "The latest move in short-term U.S. Treasury yields suggests
that the price of gold has further to fall," said Caroline Bain,
chief commodities economist for Capital Economics, cautioning
that "higher nominal yields need not necessarily be negative for
gold if they reflect rising inflation expectations."
    Bullion had already fallen sharply in the run-up to the Fed
meeting after Republican candidate Donald Trump's election to
the U.S. presidency sparked a rally in the dollar and a rise in
assets seen as higher risk, like stocks, at gold's expense.
    Holdings of the world's largest gold-backed exchange-traded
fund, SPDR Gold Shares, are down about 10 percent from
mid-November. 
    "While our house view remains for two rate hikes in 2017, we
acknowledge risks of a faster pace," said UBS Wealth Management
Research in a note, adding that it cut its three-month gold
price forecast to $1,100-$1,250 and 12-month to $1,300, from
$1,350.
    Meanwhile, silver was down 5.2 percent at $15.95 an
ounce, after falling to hit its lowest since June 1 at $15.82.
    Platinum was 2.8 percent lower at $897.60, after
falling to $885, the lowest since early February. Palladium
 was down 2.3 percent at $703, after sinking to a
one-month low at $693.90.

    
 (Additional reporting by Swati Verma and Nallur Sethuraman in
Bengaluru; editing by David Evans and Chizu Nomiyama)

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