Gold, on Thursday, December 16, hit its lowest since early February 2016, after the Federal Reserve sounded an unexpectedly hawkish note on U.S. interest rates, sparking a surge in Treasury yields and sending the dollar to a 14-year high.
Spot gold hit a 10-1/2 month low of $1,132.15 an ounce, and was down 1.2 percent at $1,129.72 an ounce by 7:52 a.m. EDT, CNBC reports.
U.S. gold futures for February delivery were 2.8 percent, lower at $1,130.90.
Lifting the federal funds rate to a 0.50-0.75 percent range on Wednesday, the U.S. central bank flagged a faster pace of hikes next year as it geared up for the incoming Trump administration’s pledges to cut taxes and boost spending.
That sparked a rally in the dollar, pressuring assets priced in the currency, while U.S. Treasury yields soared, lifting the opportunity cost of holding non-yielding gold.
“The rate hike was pretty much priced in, so what gold is really reacting to is the anticipation of three rate hikes next year instead of two,” UBS analyst Joni Teves said.
“The pressure on gold is understandable if you look at yields, if you look at the dollar. As long as yields are high, gold is going to struggle.”
The metal had already fallen sharply in the run-up to the Fed meeting after Republican candidate Donald Trump’s election to the U.S. presidency sparked a rally in the dollar and a rise in assets seen as higher risk, like stocks, at gold’s expense.
The metal saw its biggest monthly drop since mid-2013 in November, and is down 10 percent since the election.
Holdings of the world’s largest gold-backed exchange-traded fund, SPDR Gold Shares, are down about 10 percent from mid-November. Holdings fell again on Wednesday, by 6.8 tonnes.
