Gold buckles below $1 200 as dollar spurs ETF exodus

(iStock)
(iStock)

Singapore - Gold is getting trampled on. Bullion traded below $1 200 an ounce as prospects for economy-boosting policies by President-elect Donald Trump help the Federal Reserve gear up for a rate rise, hoisting the dollar to the highest level in more than a decade just as US equities hit records.

Bullion for immediate delivery fell as much as 0.5% to $1 182.95/oz and was at $1 187.02 at 08:34, according to Bloomberg generic pricing. Prices sank to $1 181.84 on Wednesday, the lowest since February, and are down 7.1% this month, the most since June 2013. After entering a bear market on Wednesday, spot silver dropped again.

Investors in the metal that’s meant to preserve wealth in troubled times have been blindsided as they grapple with the consequences of Trump’s plans to revitalise growth and boost infrastructure spending.

That push comes as the Federal Open Market Committee prepares to tighten in December, with better-than-estimated data on durable goods and manufacturing on Wednesday boosting the case for action. As the dollar surges, gold holdings in exchange-traded funds are set for the biggest monthly drop in more than three years.

“More than the Fed hike, it’s the dollar strength ahead of the FOMC meeting,” Gnanasekar Thiagarajan, director of Mumbai-based Commtrendz Risk Management Services, said by phone. “It’s really not attractive to hold gold at this point in time. It’s looking very weak.”

Mining companies sagged along with bullion, eroding gains made over 2016 as prices climbed. In Australia, Newcrest Mining, the country’s largest producer, lost as much as 4.2% in Sydney trading as Evolution Mining tumbled 6.1%. In Hong Kong, Zijin Mining retreated as much as 3.1%.

ETF outflows

Assets in bullion-backed ETFs have contracted 85.5 metric tons in November, retreating to 1 902 tons, the lowest level since June, according to data compiled by Bloomberg. After shrinking for the past ten sessions, the holdings are on course for the biggest monthly drop in tonnage terms since June 2013.

Gold’s decline this month contrasts with gains seen earlier in 2016. Prices surged in the first two quarters as the Fed held off raising rates, ETF holdings jumped and investors reacted to unexpected political events, especially the Brexit vote. Bullion was little changed in the third quarter, before tumbling.

Fed officials will hold their final meeting of the year on December 13 to December 14, and investors see a 100% probability of a move at that gathering, according to futures contracts. US central bankers have held the federal funds rate at 0.25% to 0.5% since last December.

Spot silver closed at $16.3685 on Wednesday, more than 20% below the closing on August 2, meeting the common definition of a bear market. The metal extended losses, trading as much as 0.9% lower at $16.229.

“The markets are still looking over their shoulder a little bit in trying to understand what Trump is exactly going to do,”  David Lennox, a resources analyst at Fat Prophets in Sydney, said by phone.

“There’s that safe-haven characteristic in gold, there’s still a little premium there that could keep gold from entering a bear market.”

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