Gold tumbled to its lowest in 8-1/2 months on Thursday as the dollar index jumped to a four-year peak after the Federal Reserve signalled that a faster hike in U.S. interest rates might be on the horizon.
The Fed on Wednesday renewed its pledge to keep interest rates near zero for a “considerable time”, but also indicated it could raise borrowing costs faster than expected when it starts moving.
“The shift higher in the anticipated Fed funds rate for the end of 2015 and 2016 could further weigh on gold prices longer term and act as a headwind to future rallies,” HSBC analysts said in a note.
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“If the dollar remains firm, gold should stay on the defensive,” they said.
Spot gold fell to $1,216.01 an ounce early on Thursday, its lowest since Jan. 2, before paring losses to trade flat at $1,224 by 0624 GMT. The metal lost nearly 1 percent the day before.
U.S. gold futures slid 1 percent to $1,224.70.
“Technically gold looks vulnerable, with the psychological $1,200 and the critical $1,180 now a real possibility of being tested in the coming days or weeks,” said MKS Group dealer Jason Cerisola.
The U.S. dollar had been gaining in strength even before the Fed statement, as speculation rose that the U.S. central bank would raise rates sooner than the market consensus of mid-2015.
Before Thursday, gold had dropped for four sessions out of six on worries that any increase in rates would dim the appeal of non-interest-bearing assets such as bullion.
Gold’s slide to eight-month lows over the last week has brought it within sight of a cluster of chart support lines near its 2013 lows, a breach of which could set up a slide back to $1,000 an ounce.
Any support for gold prices could come from a pick up in physical demand in Asia as a drop towards $1,200 an ounce could potentially attract bargain hunters.
Premiums in top buyer China picked up on Thursday, climbing to $5-$6 an ounce, up from about $4 in the previous session.