Gold slumps below $1,200, Fed fears hit precious metals hard

Otmane El Rhazi from The Bullion Desk.

Gold was below $1,200 in Tuesday morning London trading, falling for a second consecutive day on fears of an impending interest-rate increase in the US.

The spot gold price was last at $1,196.00/1,196.80 per ounce, down $2 on Monday’s close and below the key psychological $1,200 level following a gradual sell-off that began towards the end of the London session on Monday.

“The precious metals had generally been holding up well until yesterday’s more aggressive pullbacks; we now need to see what dip-buying interest there is around. On balance, with other markets looking more vulnerable and with the shine coming off equities, it may be that there is some call for safe havens, especially cheap ones,” FastMarkets’ William Adams said.

Ahead of the FOMC meeting scheduled for Wednesday, investors are increasingly positioning for higher interest rates from next year.

The meeting is expected to shed light on future monetary policy – the phrase “considerable time” could be removed from its statement, suggesting the Fed is confident the US economic recovery is strong enough to warrant a raising of rates from their current level near zero.

Still, the country continues to struggle with low inflation created by slowing world growth and weak oil prices – Brent crude oil hit another five-and-a-half-year low this morning at $58 per barrel.

Further measures from Russia to counteract the wildly depreciating rouble, which is down 50 percent against the dollar this year alone, have not yet had a discernible effect on gold. The country’s central bank stepped in when the rouble hit 67 against the dollar, increasing interest rates to 17 percent from 10.5 percent in a knee-jerk move.

“Gold failed to profit yesterday from the significantly higher risk aversion among market participants, as evidenced among other things in sharply falling equity markets and noticeably declining cyclical commodities,” Commerzbank said in a note. “Ahead of the Fed meeting which begins today, some short-term-oriented market participants clearly chose to take profits.”

Data today out of China this morning could sway sentiment should Beijing step in to bolster its slowing economy following the HSBC manufacturing PMI at 49.5 missing the forecast 49.8.

Out of the eurozone today, the German manufacturing PMI was robust at 51.2 although the services number was short at 51.4. In France, the manufacturing PMI undershot at 47.9 was but the services PMI at 49.8 was better than predicted.

The Eurozone manufacturing and services PMIs, German ZEW economic sentiment and the eurozone trade balance are due before the flash manufacturing PMI and US housing starts and permits.

In other metals, silver also bore the brunt of the sell-off in gold – it was last at $16.14/16.19 per ounce, down seven cents and looking to test $16. Platinum at $1,208/1,213 was unchanged while palladium at $796/801 was up $1.

(Editing by Mark Shaw)

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