Gold fell below $1,200 a troy ounce for the first time since February as the dollar strengthened and investors sold exchange-traded funds backed by the metal.
The price of the precious metal has dropped over 7 per cent since the election of Donald Trump, which sent the dollar soaring on hopes he would boost growth through infrastructure spending and tax cuts. A strong dollar is normally bad for gold since the metal is priced in the currency, reports Henry Sanderson in London.
Having surged earlier this year, holdings of gold-backed exchange-traded funds have seen their biggest outflows since July 2015 this month, according to UBS.
Hope for higher spending and inflation under a Trump administration has boosted US yields, which makes gold less attractive as it pays no yield. Gold traders are also worried about how the Fed will react to an environment of higher inflation.
“Were the Fed to be relatively dovish, this would see real rates remain low and be bullish for gold, while the opposite would be true if the Fed raised rates more quickly,” analysts at Goldman Sachs said.
At the same time, even with recent gold price weakness, buying has not emerged in China, the world’s largest consumer of physical gold.
“Indicators for both India and China suggest that appetite is currently quite subdued in contrast to the rather encouraging reaction when gold prices initially came under pressure in the early fourth quarter,” analysts at UBS said.
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