Gold at 5-yr low as Fed rate decision looms

Singapore - Gold traded near a five-year low as investors sold bullion-backed funds on expectations the US will increase interest rates this year, damping the appeal of the metal.

Palladium plunged and platinum also slumped.

Bullion for immediate delivery retreated as much as 0.4% to $1 080.40 an ounce and traded at $1 083.36 at 09:04, according to Bloomberg generic pricing. Prices slumped as much as 1.1% to $1 074.25 on Thursday, the lowest since February 2010, and have fallen for 11 of the past 12 days.

Gold is heading for a third annual loss as investors brace for the first interest rate increase since 2006 when Federal Reserve officials meet next month, with New York Fed President William C. Dudley saying the conditions for liftoff “could soon be satisfied.”

There’s a 66% probability of a move in December, Fed-fund futures data show. Higher rates make metals less competitive against assets that pay interest or offer dividends.

“Gold will probably continue to just weaken marginally, we don’t think there’s much more to go because the market’s now factoring in a December interest rate hike,” David Lennox, an analyst at Fat Prophets, said by phone from Sydney.

Global holdings in exchange-traded products backed by gold dropped to 1 507.25 metric tons on Thursday, the lowest since March 2009, data compiled by Bloomberg show. Investors sold bullion through ETPs for a 10th straight day, the longest streak since July.

“With continued speculation over a December rate hike, the outlook remains rather bleak for gold, at least until the actual Fed meeting occurs in mid- December,” James Chen, chief technical strategist at City Index, wrote in a note dated November 12.

A sustained break below the $1 080 support area, and the five-year low, could send prices plummeting to around $1 050, he said. From there, the psychologically important $1 000 mark could be vulnerable.

Palladium plunged as much as 5% to $532.85 an ounce, before trading at $544.78. The metal’s five-year low of $521 was set on August 26. Prices are down 12.3% this week and heading for the biggest weekly drop since September 2011.

Platinum dropped as much as 0.9% to $869.95 an ounce, the lowest since December 2008.