Gold slides on fears of Fed rate hike this month
GOLD slumped to a near-six-year low yesterday, after comments from United States Federal Reserve chair Janet Yellen virtually cemented the case for a US rate hike this month, while the strength of the US dollar also pressured the metal.
Spot gold fell to US$1,045.85 an ounce, the lowest since February 2010, before steadying at US$1,052.35. US gold futures slid to US$1,045.40, the lowest since October 2009.
Dr Yellen said on Wednesday that she was "looking forward" to a US interest rate rise that will be seen as a testament to the economy's recovery from recession.
She expressed confidence in the US economy, saying job growth through October suggested the labour market was healing, even if not yet at full strength.
"The market took these comments as a good indication that the Fed would raise rates at the next FOMC meeting later this month," said HSBC analyst James Steel, said referring to the Fed's Federal Open Market Committee.
A rate hike this month, widely expected in the market, would be the first in nearly a decade. Gold, as a non-interest-paying asset, would not benefit from higher rates.
"Gold is likely to remain fragile and vulnerable to the downside as investor sentiment is clearly negative," Mr Steel said.
Dr Yellen's comments come after expectations for a Fed rate hike at its Dec 15-16 policy meeting were slightly shaken on the back of poor manufacturing data released earlier in the week.
However, private employment data on Wednesday was stronger than expected, adding to gold's troubles.
US non-farm payrolls data, released later today, will be keenly watched for more clues.
The US dollar jumped to its highest in 121/2 years against a basket of major currencies on Wednesday after Dr Yellen's hawkish comments. A stronger greenback makes US dollar-denominated gold more expensive for holders of other currencies.
Investors are rapidly pulling out of bullion funds, adding to the pressure on the metal.
Assets in SPDR Gold Trust, the top gold-backed exchange-traded fund, fell 2.41 per cent to 639.02 tonnes on Wednesday, the lowest since September 2008.
The outflow is the biggest single-day percentage drop in four years.