COMMODITY TIPS | now pricing in a 100% chance of a hike
Gold was coming under renewed pressure in Asian trading on Thursday
with the strong dollar and an imminent interest rate rise in the US
taking most of the blame.
Gold for delivery in February, the most active contract on the Comex
market in New York, hit a low of $1,163.80 an ounce, levels not seen
since the beginning of February this year.
With an 8% fall, November was the worst month for the metal since
June 2013, gold has now trimmed its its year to date gains to 9.8%.
Higher interest rates boost the value of the dollar and makes gold
less attractive as an investment because the metal is not
yield-producing. Fed funds futures, a measure of expectations
for Federal Reserve rate movements, are now pricing in a 100% chance of a hike when the central bank meets in two weeks' time.
The dollar measured against a basket of the currencies of major US
trading partners has surged since Donal Trump's victory in the US
presidential elections hitting 14-year highs above 100 this week.
The greenback's all-time peak of 164.7 was reached in February 1985.
That coincided with a bottom in the price of gold of $284.25 an ounce.
“From an investor point of view there is little reason to hold gold,”
Georgette Boele, a currency and commodity strategist at ABN Amro told Bloomberg yesterday:
“Rising inflation expectations are more than countered by the rise in
U.S. Treasury yields and expectations about upcoming rate hikes by the
Fed. As long as real yields rise and there are no major inflation fears,
prices will go lower.”
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