Gold Withstands Fed Rate Hike, Down Only 1% For Week

Spot gold was down 0.6% at $1,065.96 a troy ounce in morning European trade.

Gold steadied on Friday but largely retained losses made a day earlier when the metal suffered its biggest slide in five months after the Federal Reserve hiked US rates for the first time in almost a decade. While higher borrowing costs cut the appeal of owning gold, which doesn’t pay interest, traders and analysts surveyed by Bloomberg expect higher prices as policy makers stress a gradual approach toward further raising rates.

On the other hand, gold saw little interest, with investors sending the yellow metal to $1,047.25 in the previous session, close to a near-six-year low.

Gold has tumbled 11 percent this year as investors awaited the rate rise. Now that it is out of the way, attention is turning to the pace of further increases.

“Gold remains heavily bearish and bears have been gifted an opportunity to install another round of selling momentum throughout metals before the end of the year. The data is pretty mixed historically”, Macquarie analyst Matthew Turner said. The rate hike also sent the USA dollar sharply higher on Thursday as it signals Fed confidence in the health of the American economy.

“Gold is a very effective hedge against inflation but the global landscape is dearth of inflation”, said Peter Kenny, an independent market strategist and founder of Kenny’s Commentary.

“If we can take the low out, which I don’t think is unreasonable, $1,033 is the next stop – that’s the high from 2008 – and then $1,006, and the $1,000 figure is really the level you should be talking about”, Credit Suisse analyst Christopher Hine said. “Today’s lows are probably not the lows we’re going to see next year”, said Kenny.

Holdings of the world’s largest gold-backed exchange-traded fund, SPDR Gold Shares, fell another 4.5 tonnes on Thursday to 630.17 tonnes, the lowest since September 2008.

At 1734 GMT, the Brent front-month futures contract was down 0.67% or 25 cents to $37.14 per barrel, while WTI was 2.31% or 82 cents lower at $34.70 per barrel, as a stronger dollar added to the oil market’s list of oversupply and tepid demand woes.

“Silver prices could drop to USD 13.5 per ounce while platinum and palladium prices could drop below USD 800 per ounce and USD 500 per ounce, respectively”.