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Gold Approaches Two-Year Low With Focus on Fed’s Rate Hike

·2 min read

(Bloomberg) -- Gold fell to approach the lowest level in more than two years as the dollar strengthened, with investors attempting to price the precious metal ahead of the Federal Reserve’s expected interest-rate hike on Wednesday.

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The greenback rose Tuesday alongside inflation-adjusted Treasury yields, putting additional pressure on bullion. The metal extended its drop after plunging below the $1,700-an-ounce mark last week following hot inflation data that spurred some bets on a 100 basis point rate hike by the Fed.

Most economists see the US central bank opting for a 75 basis point increase, which will have been largely priced in by bullion traders. Other central banks, including the Bank of England, also make rate decisions this week.

Robert Haberkorn, Senior Market Strategist at RJ O’Brien & Associates, believes traders have correctly factored in possible rate increases and predicts a rally in prices after an initial dip.

“My guess is we’ll see three quarters of a point hike and gold will probably rally after the fact. To me it’s built in,” Haberkorn said. “If they do a full point, you’re gonna see the market have that initial drop, but then start rallying into the end of the week.”

Investors continue to pare back their gold positions, with exchange-traded fund holdings down to the lowest since Jan. 20. Physical buying from China appears strong, with total imports of non-monetary gold last month jumping to the highest since June 2018, according to data from the country’s customs administration. Additionally, a significant price disparity remains between gold futures and physical sales, with futures traders more reactive to the market dip.

For gold, “a further slide to the mid-$1,500 an ounce level is possible,” UBS AG Wealth Management strategists including Wayne Gordon wrote in a note. “With 10-year US real yield expectations breaking above 1% and a stronger US dollar, we see further outflows from ETFs and futures over coming months.”

Gold enthusiasts at the 34th annual Denver Gold Forum this week are optimistic for the end of the year. Prices will reach $1,806.10 by year-end, according to the average estimate in a survey of 10 participants at the industry’s biggest annual gathering. The forecast is 7.8% above Monday’s spot closing price, and the last time gold settled that high was at the beginning of July.

Spot Gold fell 0.6% to $1,665.24 an ounce by 2:24 p.m. in New York. The Bloomberg Dollar Spot Index strengthened 0.5%. Silver fell 1.6% and palladium dropped 3.1%, while platinum edged 0.2% higher.

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