Gold skids as Fed policy makers set scene for hike

Singapore - Gold’s back under pressure as investors anticipate higher US interest rates. Prices dropped for a sixth day as the dollar strengthened on speculation that the US economy can withstand an increase this year and UBS Group said it was negative on the metal.

Bullion for immediate delivery lost as much as 0.4% to $1 306.93 an ounce and was at $1 308.01 at 3:17 in Singapore, according to Bloomberg generic pricing. The metal is headed for the longest losing streak since August 26 after dropping last week by the most since July.

Gold’s 2016 rally is being eroded by the renewed prospect of higher US borrowing costs. Fed Bank of Cleveland President Loretta Mester said on Monday she expects the case for a hike to remain “compelling” at the next review in November.

On Monday, a report from the Institute for Supply Management showed US manufacturing expanded in September.

"Prices have eased to start the week, as stronger-than-expected manufacturing data boosted the dollar, whilst Fed officials talked up the chances of a 2016 rate hike," Jordan Eliseo, chief economist at Australian Bullion Company, said in an e-mail.

The Bloomberg Dollar Spot Index gained for a second day to the highest level since September 21.

Fed odds

The odds of tightening at the next central bank meeting on November 1 to 2, the week before Americans head to the polls in the presidential election, is just 17%.

Still, the probability of a move in December - which could hurt gold because the metal doesn’t pay interest - is now 61% from less than 40% two months ago.

UBS is negative on gold in the short term as the Fed will probably signal next month that it will tighten in December, according to Wayne Gordon, executive director for commodities and foreign exchange at the wealth-management unit.

Physical demand has also been weak, he told Bloomberg TV on Tuesday.

Holdings in exchange-traded funds backed by gold added 1 metric tonne to 2 033.3 tonnes on Monday, according to data compiled by Bloomberg.

Spot silver fell 0.2%, while platinum and palladium both dropped 0.4%.