London: Gold is headed for the first monthly decline since May as rising speculation that the Federal Reserve may tighten monetary policy before the end of the year supports the dollar.
Bullion for immediate delivery dropped 0.2 per cent to $1,320.44 an ounce at 3.04pm in Singapore, according to Bloomberg generic pricing. The metal fell to $1,314.99 on Monday, the lowest level since July 26, and it’s down 2.3 per cent this month.
Gold’s rally this year has been eroded by prospects for higher US borrowing costs, damping demand for non-interest bearing bullion while buoying the dollar. Fed Chair Janet Yellen said on August 26 the case for tightening had strengthened and her deputy, Stanley Fischer, said an increase next month is possible. Fed funds futures indicate a 61 per cent chance of a move in December from a low of 8 per cent in June.
“Even though it’s falling because of what happened during Yellen’s speech just last week, as well as the increased probability for the rate hike, all in all, safe-haven demand for gold should persist,” Barnabas Gan, an economist at Oversea-Chinese Banking Corp, said in a Bloomberg TV interview.
Rate outlook
While the Singapore-based bank sees a single rate increase in December, gold will be supported by several “wild cards,” such as the US presidential election and potential triggering of Article 50, which begins a two-year countdown to Britain’s departure from the European Union, according to Gan.
The Bloomberg Dollar Spot Index rose on Tuesday for the seventh time in eight days, hurting demand for bullion. The gauge of the US currency is 0.2 per cent higher in August, on course for the first monthly rise since May.
