Gold Finally Gives Up $1,200 as U.S. Data Delivers Knockout Blow

  • ETF holdings heading for biggest monthly slide in three years
  • Assets have contracted for nine days as U.S. rates seen rising

What's Driving the Rally in Commodities?

Gold futures fell below $1,200 an ounce for the first time since February as the Federal Reserve prepares to hike interest rates, U.S. stocks notch up records and Donald Trump gets ready to take office.

Investors are exiting gold amid expectations President-elect Trump will bolster spending, helping push the odds for a rate increase next month to 100 percent and boosting the dollar. Major U.S. stock benchmarks rallied to records on Tuesday, and a report Wednesday showed orders for U.S. business equipment climbed in October for the fourth time in five months.

Gold futures have slid more than 6 percent since the U.S. election, and holdings in exchange-traded funds backed by the metal are heading for the biggest monthly drop in almost three years. Minutes of the Fed’s November meeting due later Wednesday are likely to confirm officials were moving closer to raising borrowing costs before the election, and developments since have served only to bolster the case for tightening.

“Gold broke the $1,200 level, which we have been drumming for the past few weeks,” Naeem Aslam, chief market analyst at Think Markets U.K. Ltd. in London, said by e-mail. “It was the U.S. durable goods orders which brought the knockout blow for the metal and pushed it below that mark.”

Gold futures for December delivery fell 1.8 percent to settle at $1,189.30 an ounce at 1:42 a.m. on the Comex in New York.

After dropping for nine sessions, assets in bullion-backed ETFs have contracted 71.8 metric tons so far in November, retreating to 1,915.8 tons as of Tuesday, according to data compiled by Bloomberg. With a week left to run this month, that’s already the biggest drop in tonnage terms since December 2013, and cuts global holdings to the lowest level since July.

The run of nine declines in global ETF holdings is the longest since a selloff last December, which preceded the Fed’s decision to raise rates for the first time in almost a decade. Higher interest rates reduce the appeal of owning gold because the metal doesn’t pay interest.

Stanley Druckenmiller, who in May said the precious metal was his top currency allocation, sold all his gold on the night of the U.S. election. The billionaire investor made a bet on stronger growth and rising rates, telling CNBC this month that all the reasons for owning gold the last few years “seem to be ending.”

— With assistance by Eddie Van Der Walt, and Ranjeetha Pakiam

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