Gold falls as looming US rate rise lifts dollar

LONDON, (Reuters): Gold fell on Monday as the dollar edged up ahead of a Federal Reserve policy meeting this week, which is expected to announce the first interest rate rise in nearly a decade.

Investors have been cutting gold positions in anticipation of a rate increase and the metal has fallen about 9% so far this year. Higher rates could dent demand for the non-interest paying asset, while also boosting the dollar.

Spot gold eased 0.7% to $1,066.50 an ounce by 1055 GMT, while US gold futures were down 0.8% at $1,067.20 an ounce.

“US rates are going to move somewhat higher, the overall environment is still one of sound growth in the States, there is no inflation on the horizon at all, so from that prospective you don’t need any gold,” Julius Baer Analyst Carsten Menke said.

“We see prices moving sideways between $1,000 and $1,100 next year.”

The dollar rose 0.3% against a basket of leading currencies, making dollar-denominated gold more expensive for foreign investors.

Stronger European equities, signaling increasing risk appetite, and a drop in oil prices to seven-year lows, also hurt bullion, which is seen as a safer asset and hedge against oil-led inflation.

Investors will soon be focusing on the pace of the Fed’s tightening cycle and how quickly it will try to normalise monetary policy, analysts said.

Assets in the top gold ETF, SPDR Gold Trust, are at their lowest since September 2008 while speculators’ short positions in gold are near record highs.

Hedge funds and money managers reduced their bearish stance in COMEX gold in the week to 8 December as prices rallied modestly, US Commodity Futures Trading Commission data showed on Friday.

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

Options traders are also boosting their bets that gold will soon hit $1,000 an ounce, data last week showed.

Physical demand from the world’s biggest consumer India was also lacking. Gold prices in India swung to a discount for the first time in a month on Monday.

Silver was down 0.8% at $13.77 an ounce, while platinum rose 0.1% to $840.95 an ounce.

Palladium rose 1.2% to $548.45 an ounce.