Gold dropped for the fourth session in five on Thursday after the Federal Reserve painted a bullish picture of the US economy, signalling it was on course to lift interest rates this year.
The prospect of a hike in US rates makes non-interest-bearing assets such as gold less attractive, helping pull bullion further away from a five-month peak reached last week.
“People are already adjusted to the new policy stance and there’s no further reason to push up gold to a much higher level,” said Mark To, head of research at Hong Kong’s Wing Fung Financial Group.
Debopam Chaudhuri, Chief Economist, ZyFin Research: Fed is growing confident in its assessment of the US economic recovery fuelled by rising employment and declining inflation. In its battle to arrive at equilibrium between unemployment and inflation, FED plans to maintain a 0-0.25% target range for the federal funds rate for some more time. We expect a rate hike by Q3 of calendar year 2015. Interestingly, the Indian economic recovery is following an identical trend like that of the US. In both nations, inflation is slowing down alongwith improving employment perception leading to a recovery in consumer confidence.
In Wednesday’s policy statement, the Fed said the U.S. economy was expanding “at a solid pace” with strong job gains, leaving the central bank on track to raise rates this year. But it repeated it would be “patient” in deciding when to increase benchmark borrowing costs from zero.
Spot gold was off 0.2 percent at $1,282.11 an ounce at 0657 GMT, adding to a 0.6-percent loss in the previous session. Gold hit a five-month high of $1,306.20 on Jan. 22.
U.S. gold for February delivery eased 0.3 percent to $1,281.90 an ounce.
The dollar was firmer against a basket of currencies and not far from an 11-year peak reached last week as dollar bulls focused on the positive in the Fed’s statement.
The Federal Open Market Committee said it would take “financial and international developments” into account when determining when to raise rates, referencing global markets for the first time since January 2013. But analysts say that does little to alter market expectations of a mid-year rate increase.
“Overall, there is little to signal a shift from expecting the first hike to come in June,” Mizuho Bank said in a note.
Gold is likely to “test levels below $1,200” again once the first U.S. rate hike happens, Phillip Futures said in a note. Investors will be watching U.S. gross domestic product data on Friday for more clues on the strength of the economy.
Some economists say a drop in U.S. business investment spending for the fourth straight month in December suggested a risk that fourth-quarter economic growth could fall short of forecasts that mostly hover around a 3.0 percent annual pace.