Gold has worst week since May; rate rise expected

Gold is heading for the biggest weekly drop since May as investors anticipate higher U.S. interest rates and progress on tax reform buoys the dollar, deepening a slump for the metal that touched a one-year high as recently as September.

Bullion for immediate delivery has lost 2.6 per cent this week, the most since the period ended May 5. Data on Friday showing the U.S. added more jobs than forecast in November bolstered the case for the Federal Reserve to raise interest rates. The Bloomberg Dollar Spot Index is poised for its biggest weekly advance in a year.

While bullion is still heading for the first back-to-back annual advance since 2012, the rally has stalled this quarter as stock markets hit record highs and the Fed continues tightening monetary policy.

The policy-setting Federal Open Market Committee is widely expected to raise rates at its meeting on Dec. 12-13, which would be the third hike this year, further curbing the appeal for non-interest bearing bullion.

“Gold’s role as a safe haven and a store of value is greatly diminished at this point,” said Barnabas Gan, an economist at OverseaChinese Banking Corp. in Singapore. “Market-watchers are likely positioning for an FOMC rate hike next week. The improvement in risk appetite considering the postponing of the U.S. partial government shutdown and further progress in Brexit talks should buoy market sentiment into the next week.”

Spot gold rose less than 0.1 per cent to $1,247.58 an ounce in New York on Friday afternoon, according to Bloomberg generic pricing. The metal has dropped 2.5 per cent since the end of September. It is up 8.7 per cent this year.