Gold fell more than 1 percent on Monday, giving up the prior session’s gains on pressure from the rising dollar, expectations for U.S. interest rate hikes and as the market entered a holiday week.
Spot gold was down 1.4 percent at $1,275.66 an ounce by 2:38 p.m. EST (1938 GMT), off Friday’s peak of $1,297, its strongest since Oct. 16. U.S. gold futures settled down 1.6 percent at $1,275.30.
The U.S. dollar touched its highest against a basket of major currencies in nearly a week, as the euro weakened amid political risks linked to German Chancellor Angela Merkel’s failure to form a three-way coalition government.
Global equities rose as confidence over economic growth around the world helped investors brush off concerns about the collapse of government talks in Germany. “This reversal is not terribly surprising because you’ve entered a holiday week and didn’t make much progress in that breakout,” said Rob Haworth, senior investment strategist at U.S. Bank Wealth Management, referring to the U.S. Thanksgiving holiday on Thursday and failure to extend the Nov. 17 rally to a one-month high.
“The dollar is strengthening … and the odds of a rate increase are starting to rise. I think we’ve priced in December and you’re starting to price in two or three next year.” The prospect of higher U.S. interest rates when the Federal Reserve meets in December helped the dollar against other major currencies such as the yen.
Goldman Sachs said it expects a tight U.S. labor market and more normal inflation picture will lead the Fed to hike interest rates four times next year. “For gold, there are headwinds in the guise of U.S. interest rate rises, which means higher front-end bond yield curves and an opportunity cost for holding gold,” said Societe Generale analyst Robin Bhar.
Higher rates typically mean sales of short-dated bonds, pushing up yields and make them cheaper for other investors, offering higher returns than gold which earns nothing and costs money to store and insure.
Silver was down 2.3 percent at $16.91 an ounce and platinum fell 3 percent to $922.30. Palladium eased 0.5 percent to $988.50 an ounce. Traders said palladium could come under pressure from news that Norilsk Nickel is planning to boost purchases of palladium for its fund from Russian central bank reserves to help ease shortages in the market.
An executive at Norilsk, the world’s largest palladium producer, told Reuters that purchases in 2017 would rise to as much as 600,000 ounces. This compares with about five tonnes (160,764 ounces) last year.