Gold plunged on the morning of Thursday December 15 in London after the US Federal Open Market Committee (FOMC) lifted the federal funds rate for the first time in a year on Wednesday.
The spot gold price was recently quoted at $1,137.25/1,137.55 per oz, down $5.10 on the previous close. Trade has ranged from $1,134.90 to $1,144.50 so far.
The US dollar index surged to 102.63 on Thursday – its highest since January 2003 – in response to the rate increase and hawkish statement from the FOMC. The index was recently at 102.45, up 0.19% on the previous close.
The US Federal Reserve raised the federal funds rate by 25 basis points to 0.5-0.75% – the increase, the first since December 2015, had been widely expected in the market.
Expectations of a further expansion of economic activity and a strengthening of the labour market, as well as a further rise in inflation, were reasons cited for the increase.
In addition, the FOMC’s forecast for its futures rate path, or dot plot, now suggests three rate increases in 2017, compared with two previously predicted. The FOMC also mildly revised its outlook for GDP growth to 1.9% from 1.8% for 2016, and to 2.1% from 2.0% for 2017.
“The more hawkish FOMC stance has weighed on bullion prices and the downward trend in gold prices has continued, although silver and platinum prices have held above recent support,” William Adams, Metal Bulletin analyst, said.
“With the US interest rate decision now out of the way, we wait to see whether the market now focuses on all the uncertainty that 2017 brings – including how big a splash the new US president will make, the fallout from Brexit and how emerging markets will react to what looks likely to be a more hawkish US monetary policy,” he added.
In the other precious metals, spot silver prices fell 26 cents to $16.550/16.570 per oz. Platinum at $922/927 per oz was unchanged and palladium at $722/728 per oz was up $4.
(Editing by Rod George)