Singapore/ Hong Kong: Gold is being tormented by the mighty dollar, with the precious metal sinking to a nine-month low as the prospect for higher interest rates from the Federal Reserve next month and in 2017 lifts the US currency.
Gold for immediate delivery tumbled as much as 0.9% to $1,171.18 an ounce, the lowest since February, and was at $1,180.41 at 2.17pm in Singapore, according to Bloomberg generic pricing. Prices have sunk for the past three weeks, losing 7.6% this month, the most since June 2013.
Gold has collapsed in November, while cheaper haven silver entered a bear market, as investors embrace risk on the back of President-elect Donald Trump’s pledges to increase infrastructure spending and revitalize the economy. That’s helped spur US equities to records. The Federal Reserve is poised to tighten monetary policy at its year-end meeting, invigorating the dollar, which rallied this week to the highest level since at least 2005.
“After Trump won the presidential election, the market sentiment has been changing dramatically,” Tetsu Emori, president of Emori Capital Management Inc., said by phone. “Gold is being pushed down by the stronger dollar and an interest rate raise. Investors are looking to buy more risky assets rather than gold as a safe haven.”
Higher borrowing costs tend to hurt bullion, which doesn’t pay interest or bear yields. As gold has been in retreat this month, investors have been selling holdings in bullion-backed exchange-traded funds, which shrank for the 10 days to Wednesday.
Silver has been battered, too. Spot silver dropped to $16.1745 an ounce on Friday, the lowest level since June, before rebounding. The metal has declined more than 20% from the year’s closing high in August, meeting the common definition of a bear market.
The plunge has hurt miners’ shares. In Australia, Newcrest Mining Ltd., the country’s largest gold producer, lost 5.8% this week, while Evolution Mining Ltd. tumbled 2.3 %. Barrick Gold Corp., the world’s biggest bullion miner, has lost 4.9% in Canada since Monday.
Evolution Chairman Jake Klein told shareholders this week that while bullion hadn’t reacted to Trump’s win as investors had expected, the new president’s agenda may help to spur inflation. Bullion is seen by some investors as a hedge against inflation by rising in value as price gains accelerate.
While bullion may see some softness as the December hike nears, there’s potential for gains next year as investors re-examine risks outside the US, according to George Cheveley, portfolio manager at Investec Asset Management. That shift may come after Trump is sworn in January, he said.
“As we approach the rate hike, we’d see it trade probably sideways, maybe slightly softly,” Cheveley said in a Bloomberg Television interview with Yvonne Man. “Once we’re through that, as we get into new year, I think people’ll look around the rest of the world. We see a lot of uncertainty in Europe.” Bloomberg