Selling pressure on gold accelerated after the latest meeting of the US Federal Reserve, dropping below $1,300 a troy ounce for the first time in a month after the central bank affirmed its intention to raise interest rates over the next year.
A bounce in the US dollar also weighed on bullion, which was down 4 per cent from its peak for the year at $1,293 late in London on Thursday.
Silver prices also fell, dropping 1 per cent to $17 a troy ounce, below its 200-day moving average — a key measure of momentum for traders.
Earlier this month, gold hit its highest level in over a year at $1,358 a troy ounce as the dollar weakened and tensions escalated with North Korea over its nuclear programme.
The Fed indicated on Wednesday that a tightening of its key overnight borrowing rate was likely by December with a majority of officials looking at a further three increases in during 2018.
The central bank will also start unwinding its multi-trillion dollar balance sheet in October.
“Most people looked at the concept of reducing the balance sheet and viewed that as bullish for the dollar and bearish for gold,” said David Govett, head of precious metals at broker Marex Spectron.
“It was North Korea less than a month ago, which hasn’t changed, but people seem to have forgotten about that and concentrated on the FOMC announcement.”
Higher interest rates make gold less attractive since the metal provides no yield. After peaking in early September, gold remains up 13 per cent on the year. Silver prices are up 6 per cent year-to-date.
“The surprise was they were more definite about a December rate hike and they were pretty definite they will do three hikes, which was a slightly more hawkish tone,” said George Milling-Stanley, head of gold strategy at State Street Global Advisors. “But I think gold will bounce from here. Nothing is making me feel gold is going to go down any more.”
Gold has fallen after each rate hike since the Fed first started raising rates in December 2015 but rebounded each time, Mr Milling-Stanley said.
Other analysts agreed that the move lower for gold was only a temporary dip.
Marcus Garvey, an analyst at ICBC Standard Bank in London, said the Fed’s statement was “only a marginally hawkish tilt”, not a wholesale change in policy.
Core inflation in the US is still subdued and the potential of five new appointments to the Federal Open Market Committee next year means there is still “plenty of uncertainty to contend with”, Mr Garvey added.
But any move higher is likely to require broader investor demand for gold, especially from consumers in India and China, the world’s largest buyers of physical gold.
Demand for gold eased 14 per cent in the first half of this year to 2,003.8 tonnes, according to the World Gold Council, an industry-backed body.
Exchange traded funds in Asia also saw outflows of $80m in August, the World Gold Council said.
“Below $1,300 we’re not seeing physical demand. Gold has been sub-$1,300 for most of the year,” Mr Govett said. “It’s not as though physical buyers are looking at it saying it’s cheap.”
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