Gold plummets below $1,140/oz as dollar soars after US rate increase

The spot gold price plummeted to below $1,140 per oz during Asian trading hours on Thursday December 15 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 $1,142.90/1,143.20 per oz, up $0.55 on the previous close. Trade has ranged from $1,134.90 to $1,144.50 so far – the lower end being the lowest since February 3 2016.

The US dollar had surged to 102.63 on Thursday – the highest since January 2003 – in response to the rate increase and hawkish statement from the FOMC. The index was recently at 102.27, up 0.02% from Wednesday’s close.

The US Federal Reserve raised the federal funds rate by 25 basis points to 0.5%-0.75% – the increase, a first since December 2015, was widely expected in the market.

Expectations of further expansion in economic activity and labour market strengthening, as well as a further rise 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.

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 FOMC was more hawkish than anticipated with its statement more upbeat on activity and inflation than in early-November, ANZ Research said on Thursday morning.

But Chris Weston, a market analyst at IG, noted that the FOMC was remaining prudent in its projections until there were more specifics on president-elect Donald Trump’s fiscal stimulus measures.

“It was made fairly clear that the Fed are still on edge and believe there are a number of variables that could derail this recent run of form. There are clearly a lot of questions that need answers and of course the Fed are happy to show a degree of patience before reacting. This seems prudent,” he said.

In US data released on Wednesday, November core retail sales at 0.2% undershot the forecast 0.4% as did retail sales at 0.1% against expectations of 0.3%. The November PPI bettered expectations at 0.4% while November industrial production fell -0.4% compared to consensus for a 0.2% decline.

Chinese data released on Wednesday showed November Chinese M2 money supply as expected at 11.4%, while the country’s November new loans at 795 billion yuan ($115.3 billion) were up on the forecast of 750 billion yuan.

US data due later today includes CPI, core CPI, Philly Fed manufacturing index, unemployment claims, current account, Empire State manufacturing index and flash manufacturing index.

In other commodities, the Brent crude oil spot price rose 0.2% to $53.80 per barrel recently on Thursday.

In equities, the Shanghai Composite rose 0.71% to 3,118.22 so far today.

In the other precious metals, the spot silver price decreased $0.03 to $16.78/16.80 per oz. Platinum gained $7 to $929/934 per oz, and palladium increased $6 to $725/730 per oz.

On the Shanghai Futures Exchange, gold for June delivery was recently at 267.45 yuan ($39) per gram, and the June silver was at 4,243 yuan per kg.

(Editing by Kyle Docherty)

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