(Australian Associated Press)
(Reuters) – Gold prices sank to their lowest in more than 10 months on Monday, hit by expectations of an increase in US interest rates this week that have boosted US Treasury yields.
The Federal Reserve is widely expected to hike interest rates for only the second time in a decade at a two-day meeting that begins on Tuesday. But bets are now being placed on the timing of rate hikes next year.
Spot gold was steady at around $US1158 an ounce at 1515 GMT (0215 AEDT) after hitting its lowest since February 5 at $US1,151.34 an ounce.
US gold futureswere barely changed at $US1,160.30 per ounce.
“The Fed’s statement is much more important on this occasion than the rate hike because its been very widely expected that rates will increase at this meeting,” said ICBC Standard Bank analyst Tom Kendall.
“It’s unlikely that the Fed would do anything different to what’s expected so it is going to be about what the tone of that statement is about growth next year.”
Markets were pricing in a nearly 100 per cent chance for a quarter percentage point increase to the Fed’s target range.
Gold is highly sensitive to rising rates, which lift the opportunity cost of holding non-yielding assets such as bullion, while boosting the dollar, in which it is priced.
Physical demand also waned from major consumers China and India.
“If we were seeing volume from those two buyers as prices fell you would be a bit more positive about the prospects of gold finding a floor, but both those markets are pretty weak,” ICBC Standard Bank’s Kendall said.
Holdings of the SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, fell 0.38 per cent to 857.45 tonnes on Friday. Holdings have dropped about nine per cent since November.
Hedge funds and money managers trimmed their net long positions in gold and silver for the fourth week in a row, US Commodity Futures Trading Commission data showed on Friday. In gold, they cut their net long position by 22,578 lots to 80,814.
Bank of America Merrill Lynch said in a note it expects gold to slip below $US1,150/oz in 2017 as nominal rates are pushed up by the inflationary economic policies of President-elect Donald Trump.
Silver was steady at $US16.85 an ounce, while platinum was up 0.3 per cent to $US917.45. Palladium rose 0.9 per cent at $US723.47.