Gold struggles ahead of Fed meet on US rate hike views

[SINGAPORE] Gold was hurting from overnight losses on Tuesday and the metal looked vulnerable to a drop back to multi-year lows on expectations of a US rate hike later this week.

The Federal Reserve will kick off its last policy meet of the year later on Tuesday. At the end of the two-day meet, the US central bank is widely expected to hike interest rates for the first time since June 2006.

Higher rates are expected to hurt demand for non-interest-paying bullion, while boosting the dollar.

Gold has already slid 10 per cent for the year, its third straight annual decline, in anticipation of higher rates.

Spot gold had ticked up 0.1 per cent to US$1,063.80 an ounce by 0613 GMT, after a 1.1-per cent slide on Monday. The price is only about US$20 short of a near six-year low of US$1,045.85 reached earlier this month.

"Gold continues to weaken as investors await this week's FOMC," ANZ analysts said in a note, referring to the Federal Open Market Committee.

"We believe the pace of the rate hikes will hold the key for gold prices in the coming year." Traders and analysts expect further declines.

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

Robustness in the dollar and weakness in oil prices also kept gold prices from moving higher.

Brent crude was trading close to 11-year lows. Lower oil prices could trigger deflation fears, a bad sign for gold that is often seen as an inflation hedge.

Gold wasn't getting much support from the physical markets either.

Gold prices in India swung to a discount for the first time in a month on Monday as jewellers and dealers in the world's second-biggest consumer postponed purchases ahead of the Fed meeting.

Among other precious metals, silver steadied at US$13.70 an ounce after a six-day losing streak. It had dropped to US$13.60 on Monday, its lowest since August 2009.

REUTERS