Gold holds gains as investors ask ‘now what’ for US Fed rates

Gold is being whipsawed as investors try to gauge the pace of future USA interest-rate increases.

Many traders were in short positions when the Federal Reserve decided on its much-anticipated interest rate hike at its Federal Open Market Committee (FOMC) meeting from Tuesday to Wednesday. The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, lost 0.4 percent Friday to halt six days of gains. The precious metal is down 11% so far this year. “With any hopes of a recovery in prices discounted, further dollar appreciation should send this zero yielding metal back towards 1046 [an ounce] and potentially lower”, said Lukman Otunuga, research analyst at FXTM in a Friday research note.

“We believe that trading conditions will start to thin out, but that does not mean trading ranges will necessarily narrow”, said INTL FCStone analyst Edward Meir.

Gold’s heyday was during the 2008 crisis when people flocked to the metal as people feared a collapse of the global financial system and stocks crashed.

Gold prices regained some ground in European morning hours on Friday, helped by a softer US dollar as markets digested the Federal Reserve’s decision to raise interest rates for the first time in almost a decade. The metal could revisit $1,000 for the first time in six years if it breaks below its early December low at $1,045, according to technical analysts. Majority (drags) will not disappear next year, and might show more strength following a new Fed rate-hike cycle.

None of that is good for gold, which tends to rise when people are anxious about inflation or the stability of the economy. “Given the uninspiring chart patterns, we have to suspect that the path of least resistance remains lower still for the precious group as a whole, exacerbated by a stronger dollar and a more aggressive Fed”, Meir said.

The total assets had fallen to a seven-year low last week. Gold prices have experienced two most serious bubble phases since the collapse of the Bretton Woods system with the U.S. dollar being taken off the gold standard in the early 1970s: In the first phase between 1979 and January 1980, the metal jumped by 325 percent to a record high of 850 dollars from 200 dollars. On the New York Mercantile Exchange, platinum and palladium also advanced.

“Gold will continue to weaken”.