Gold drops to five-month low as US dollar strengthens on rate bets

[SINGAPORE] Gold fell to a five-month low, extending its decline last week after the presidential election as the US dollar strengthened on higher expectations for an interest rate increase in the US.

Bullion for immediate delivery dropped as much as 1.1 per cent to US$1,213.81 an ounce, the lowest level since June 3, and was at US$1,217.19 at 9:15am in Singapore, according to Bloomberg generic pricing. The metal lost 5.9 per cent last week, the most since June 2013.

Gold had a volatile week after the surprise election of Donald Trump saw prices jump on haven demand, only to slump as investors marked down the risk to markets. The focus is now back on US interest rates, with a 84 per cent probability of a quarter percentage-point hike at the Federal Reserve's Dec 13-14 meeting, according to pricing in fed funds futures. The Bloomberg Dollar Spot Index rose 0.4 per cent.

"The Fed's now got to deal with the uncertainty of a president who may stimulate the economy through significant infrastructure, so we could see more interest rate activity through 2017 ," David Lennox, a resources analyst at Fat Prophets in Sydney, said by phone.

"Gold is still reacting very much to the direction of the dollar."

BLOOMBERG