Gold falls as expectation for US rate hike looms

Gold-loving India is buying less due to higher import duties and a jewelers strike.
Shailesh Andrade | Reuters
Gold-loving India is buying less due to higher import duties and a jewelers strike.

Gold fell 1 percent on Monday ahead of a Federal Reserve policy meeting this week, which is expected to announce the first interest rate rise in nearly a decade.

Investors have been cutting gold positions in anticipation of a rate increase and the metal has fallen about 10 percent so far this year. Higher rates could dent demand for the non-interest paying asset, while also boosting the dollar.

Spot gold eased 0.2 percent to $1,060.03 an ounce, while U.S. gold futures for February delivery settled 1.1 percent lower at $1,063.40 an ounce.

"Gold's downtrend persists, with initial support around $1,062-$1,063, a break of which could see prices back to their December lows (at $1,045)," ActivTrades chief analyst Carlo Alberto de Casa said.

Bullion prices held technical support just above $1,060, a short-term Fibonacci retracement level from the Dec. 4 high to the Dec. 3 low.

"It's coming into critical support. If it holds right here, we can go higher," said Eli Tesfaye, senior market strategist for brokerage RJO Futures in Chicago.

Meanwhile, spot silver hit its lowest since August 2009 at $13.60 an ounce.

"U.S. rates are going to move somewhat higher, the overall environment is still one of sound growth in the States, there is no inflation on the horizon at all, so from that prospective you don't need any gold," Julius Baer analyst Carsten Menke said.

"We see prices moving sideways between $1,000 and $1,100 next year."

The Fed is expected to issue a post-meeting statement at 2 p.m. EST (1900 GMT) on Wednesday.

"The inevitability of the rate hike is here so it's an accumulation of that," said Tesfaye about the reason for falling gold prices.

"No risk is coming into this market."

Gold remained weak despite the turnaround of both the dollar falling 0.4 percent against a basket of leading currencies, and U.S. crude turning up after nearing 11-year lows.

Assets in the top gold ETF, SPDR Gold Trust, are at their lowest since September 2008 while physical demand from the world's biggest consumer India was also lacking, with gold prices there swinging to a discount.

BofA Merrill Lynch said on Friday it expected the gold price to slide to $950 early in 2016 due to the upcoming U.S. rate rise, joining a chorus of other brokerages, including Goldman Sachs, predicting a drop to, or below, $1,000.

Palladium rose 0.9 percent to $547.10 an ounce while platinum was up 1 percent at $853.50 an ounce.