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Outlook on rising interest rates has pushed gold to its lowest value since January as demand for an inflation hedge declines.
Gold futures with a Delivery date in December dropped to a price per ounce of $1,239 after falling 0.5% early afternoon in New York’s Comex. Prices earlier reached the lowest among most active contracts since January 23rd when it fell to $1,235.30. The precious metal has declined by 11% ever since reaching its peak so far this year as the US economy continues to improve and strengthen the dollar, reducing demand for alternative assets. Investor interest for a safe haven suffered as well with tensions in the Middle East and Ukraine easing.
Meanwhile, gold backed exchange traded products have seen over $5.1 billion shed from their overall value since the end of June. Bullish bets made by money managers have decreased for three consecutive weeks while open interest for options and futures in New York is nearing its lowest in five years.
Scott Gardner from Panama City’s Verdmont Capital SA says that, “It’s hard to get excited about gold in this current environment when the dollar is rising and the political tensions have eased. People don’t want gold when rates are expected to rise, while inflation has remained muted.”
Traders are betting that the Federal Reserve will hike up interest rates by the middle of 2015 which will be part of the central bank’s discussions when they next meet on September 16 to 17. Gold fell by 28% in 2013 when the Fed first suggested that it will begin reducing its asset purchases. The bank’s monthly bonds buying program was scaled back down by another $10 billion for the sixth month in July which brought its total to $25 billion.
Analysts from Goldman Sachs Group Inc predict that the price of gold will continue to fall in the coming 12 months as the US economy strengthens until it reaches $1,050 per ounce.
Futures for silver with a delivery date in December declined by 1.7% to arrive at a price per ounce of $18.599 after touching its lowest since June 2013 at $18.57.
Platinum on the New York Mercantile Exchange declined by 0.7% to a price per ounce of $1,370.70. Palladium in December fell to $833.20 per ounce after dropping by 1.9%.
