Gold can’t catch a break as prices sink to 10-month low

PUBLISHED : Friday, 16 December, 2016, 1:20am
UPDATED : Friday, 16 December, 2016, 1:20am

The bad news for gold bulls just keeps coming.

A day after the Federal Reserve signalled rates will rise next year faster than expected, the Labor Department released data showing fewer Americans filed for applications for unemployment benefits, validating policy makers’ view of a vigorous labour market. The dollar climbed to the highest in more than a decade, diminishing the appeal of gold as an alternative investment.

After its best first half in almost four decades, gold’s gains for the year have deteriorated, with prices headed for the worst quarterly loss in more than three years.

Sentiment turned negative for bullion as investors found better returns elsewhere, with US equities rising to records, the dollar strengthening and Treasury yields climbing amid speculation that President-elect Donald Trump’s spending plans may accelerate the nation’s growth.

“The economy seems to be doing good, and you’ve also got the Trump effect, which has been bad for gold and good for stocks,” Fain Shaffer, the president of Infinity Trading Corp. in Indianapolis, said in a telephone interview. “We’re recommending to short gold. There’s really no reason to own gold.”

Gold futures for February delivery slipped 2.9 per cent to $1,130.40 an ounce on the Comex in New York, after touching $1,127.40, the lowest for a most-active contract since February.

While traders unanimously predicted the Fed would raise borrowing costs on Wednesday, new projections show Fed officials expect three quarter-point rate increases in 2017, up from the two seen in the previous forecasts in September, based on median estimates.

US Fed ends era of easy funds with rate increase, foretelling three more moves in 2017

On Thursday, Labor Department data showed US jobless claims fell by 4,000 to a three-week low of 254,000 in the period ended December 10. Solid job growth and falling unemployment helped persuade Fed policy makers to raise interest rates on Wednesday for the first time in a year.

An index of 16 gold producers tracked by Bloomberg Intelligence dropped as much as 4.9 per cent, led by Harmony Gold Mining Co. and Gold Fields Ltd.