Gold’s dismal week has investors asking what’s after March hike

Singapore/New York/Johannesburg: Gold is enduring a wretched week with the biggest loss since November as investors contend with a stronger dollar and zero in on the prospect of multiple US interest rate increases this year.

Bullion fell as much as 0.5 per cent to $1,195.08 (Dh4,389) an ounce, the lowest since January 31, and was at $1,197.03 an ounce at 10.17am in London. It’s down 3.1 per cent this week as 10-year Treasury yields extended gains, making non-interest-bearing assets less attractive. Silver, platinum and palladium have also dropped.

Precious metals have been hammered by Fed officials including Chair Janet Yellen talking up the prospect of higher rates when they gather next week. Better-than-expected US private jobs data this week also boosted the dollar, before official payrolls figures are due later Friday. The European Central Bank, meanwhile, has signalled it won’t add to stimulus as growth picks up.

“It’s not about this one rate hike, it’s about the outlook and how far this can go,” John Meyer, a London-based analyst at SP Angel Corporate Finance LLP, said by phone, adding there could be as many as four rate increases this year. “I see US interest rates going up, jobs up, more confidence in the US economy and for that to lead gold lower.”

After the Fed raised rates once in 2015 and again in 2016, the pace looks set to quicken this year. The so-called dot plot illustrating policymakers’ projections suggests three increases in 2017. While economists see non-farm payrolls declining, possibly supporting gold, their projections have underestimated employment growth in February for five years in a row.

“The immediate question now is the climate we may face after the rate hike comes to pass,” Barnabas Gan, an economist at Singapore-based Oversea-Chinese Banking Corp., wrote in a note dated March 10. While market watchers will be left wondering when the next rate hike is coming, uncertainty over European elections and a lack of clarity over Trump’s policies, may mean the fall in gold is short-lived, he said.