Gold fell to a 5-1/2-month low on Thursday, giving up earlier gains as the dollar index tapped a 13-1/2-year high on strong U.S. economic data and comments by U.S. Federal Reserve Chair Janet Yellen that bolstered the case for hiking interest rates next month.
The dollar vaulted to 13 1/2-year highs against a basket of major currencies as U.S. bond yields rose, leaving Asian stocks vulnerable to potential rotation out of emerging markets to the United States.
The dollar's index against a basket of six major currencies .DXY =USD rose above its "double top" touched in March and December of 2015. The index now stands at its highest level since 2003.
"With the market pricing in a 98 percent probability of a rate hike this December, this is one of the best-telegraphed Fed messages ever," said Maria Smirnova, Sprott Asset Management portfolio manager, adding that hints of monetary policy in 2017 will also be important.
"We believe if Trump spends by cutting taxes and increasing infrastructure build out, he will add to the debt burden in the U.S., which will in turn put pressure on interest rates," Smirnova said. "Thus, we do not think that the policies that Trump is proposing will be as negative for gold as the market thinks."
Kitco analyst said “The dollar kept at its inexorable rise, driving down gold, silver, haven currencies and face price on bonds, all haven plays that no one wants to play with. The preponderance of gold’s decline was attributable to dollar strength. Silver was hit by downbeat regular trading as well as the greenback. Equities rose nicely across the three major indexes. The Dow was weakest but still gained 0.20% while the NASDAQ continued to recover from a shaky November start, moving up 0.75%.”
Reference: Kitco, Reuters
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