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Gold plummets 2%, falling to near six-year lows in wake of Fed rate hike

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Investing.com -- Gold futures slid by nearly $30 an ounce on Thursday tumbling back down to near six-year lows in their first full session since the Federal Reserve hiked interest rates for the first time in nearly a decade.

On the Comex division of the New York Mercantile Exchange, gold for February delivery traded in a broad range between $1,046.90 and $1,073.20 an ounce before settling at $1,051.80, down 25.00 or 2.32% on the session. Gold suffered its worst one-day fall since late-October, marking the seventh session it crashed by more than 2% on the calendar year. At Thursday's intraday lows, gold came within a dollar of dropping to its lowest level since 2009. The precious metal has flirted with multi-year lows since the start of December.

Gold likely gained support at $1,046.20, the low from Dec. 3 and was met with resistance at $1,121.90, the high from Nov. 4.

Investors on Thursday reacted to the Federal Open Market Committee's historic decision to abandon a zero interest rate policy it maintained over the previous seven years since the height of the Financial Crisis. In a unanimous decision, the FOMC, lifted the Federal Funds Rate by 25 basis points to a range between 0.25 and 0.50%. Before Wednesday's decision, the FOMC had held short-term interest rates at near zero levels for 56 consecutive meetings, a streak which dated back to December, 2008. The Fed Funds Rate is the rate offered by institutions on overnight, interbank loans held at the Fed.

Citing solid labor market conditions and expectations that sluggish inflation will improve over the next several years, the FOMC judged the U.S. economy has improved enough to handle a modest interest rate hike. Less than 24 hours after the announcement, global markets maintained a calm temperament, according to a number of prominent analysts providing the Fed with the ideal reaction it had hoped for.

Major rate hikes, though, are viewed as bearish for gold, which struggles mightily to compete with high-yield bearing assets.

Investors now await two FOMC meetings in the first quarter of fiscal year 2016 for further indications on the Fed's path for normalizing monetary policy. At Wednesday's press conference following the announcement, Fed chair Janet Yellen said the FOMC will employ a data-driven approach for its next rate hike. Unlike the Fed's previous tightening cycle a decade ago, Yellen insists that the U.S. central bank will avoid taking a mechanical course to normalization by approving equally-spaced, evenly-timed rate increases.

In median projections released on Wednesday, the FOMC anticipates that Fed Funds Rate will reach 1.4% by the end of 2016, before approaching 2.5% by the completion of 2017.The projections suggest that the FOMC could approve as many as four rate hikes next year.

The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, surged more than 0.85% to an intraday-high of 99.27. The Fed's upward move is regarded as bullish for the dollar, as investors pile into the greenback to capitalize on higher yields.

Dollar-denominated commodities such as gold become more expensive for foreign purchasers when the dollar appreciates.

Silver for March delivery plunged 0.523 or 3.67% to 13.725 an ounce.

Copper for March delivery fell 0.028 or 1.36% to 2.043 a pound.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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