Gold retreated into the red on Thursday after the dollar rebounded on the back of a decision by the European Central Bank to extend monthly asset purchases until next December albeit at a lower monthly level.
Gold turned lower as the market focused on the central bank's move to extend its quantitative easing program until the end of 2017, beyond the six-month extension expected.
The most active gold contract for February delivery fell 5.1 U.S. dollars, or 0.43 percent, to settle at 1,172.40 dollars per ounce.
The U.S. dollar was given support as Mario Draghi, president of the European Central Bank (ECB) announced that the ECB would reduce the pace of its bond-buying program, also known as quantitative easing, beginning in April 2017.
Investors saw this announcement as a weakness for the Euro, and a positive for the U.S. dollar, as the U.S. Dollar Index rose by 0.98 percent to 101.20 as of 1800 GMT. The index is a measure of the dollar against a basket of major currencies. Gold and the dollar typically move in opposite directions, which means if the dollar goes up, gold futures will fall as gold, measured by the dollar, becomes more expensive for investors.
Gold was put under further pressure as a report released by the U.S. Department of Labor showed initial jobless claims falling by 10,000 to a 258,000 level during the week of December 3rd. Analysts note that although this figure was within expectations, this report is in line with others which show consistently low jobless claims: a positive sign for the U.S. economy.
Investors are also monitoring the likelihood of a U.S. central bank rate hike during the December Federal Open Market Committee (FOMC) meeting beginning next week on Tuesday and ending on Wednesday with a press conference and announcement.
According to the CME Group' s Fedwatch tool, the current implied probability of a hike from 0.50 to at least 0.75 is at 97 percent at the December meeting and 97 percent for the February meeting.
Gold prices are under pressure, but any renewed weakness has already been priced in so prices are likely to move higher later in 2017, this according to one international bank.
For the U.S. central bank, ICBC said that the Federal Reserve could be in a tough position next year with the bank forecasting two rate hikes. They noted that the Fed will have to keep interest rates low to protect the housing market, which accounts for 13% of U.S gross domestic product. At the same time, the central bank will also have to limit the rally in the U.S. dollar to protect the manufacturing sector, which accounts for 12% of U.S. GDP.
Reference: Xinhua, Kitco
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