Gold blanks for krugerrand coins sit in a collection bin (Photographer: Waldo Swiegers/Bloomberg)

Gold's Beaten Down in Worst Week Since May on U.S. Rates Outlook

(Bloomberg) -- 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 percent 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.

Gold's Beaten Down in Worst Week Since May on U.S. Rates Outlook

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 Oversea-Chinese 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.”

Quarterly Decline

Spot gold rose less than 0.1 percent to $1,247.58 an ounce at 2:27 p.m. in New York, according to Bloomberg generic pricing. The metal has dropped 2.5 percent since the end of September. It is up 8.7 percent this year.

Gold futures for February delivery fell 0.4 percent to settle at $1,248.40 an ounce on the Comex in New York.

Congress passed a two-week extension of federal funding that averts a government shutdown this week. Investors are also optimistic after the passage of the U.S. tax bill through the Senate, with House and Senate Republicans now working on compromise legislation to be sent to President Donald Trump by the end of the year.

On Friday, the U.K. and the European Union broke a deadlock in divorce negotiations, opening the way for talks on the nature of the post-Brexit future. Later, the U.S. government reported that payrolls in November rose 228,000, above the 195,000 median estimate of economists. The jobless rate held steady, and wages rose less than expected.

“This report provides a green light for a December Fed rate hike, and is likely to support an increase in FOMC member forecasts of Fed rate hikes for 2018,” Jason Schenker, president of Prestige Economics LLC in Austin, said in a note to clients.

Other precious metals:

  • Silver rises 0.5 percent to trim a third weekly decline in the spot market
  • Platinum has tumbled 5.7 percent this week
  • Palladium is down 1.3 percent this week

©2017 Bloomberg L.P.