Gold Price falls After Fed Decision
New York (Dec 17) Gold and other metal prices sank on Thursday after the first U.S. rate rise by the Federal Reserve in nearly a decade strengthened the dollar.
Investors sold metals, while the Fed's move had the opposite effect on shares, sending equity markets around the world sharply higher and the yields on many bonds lower.
Metal prices have fallen steadily from their 2011 record highs amid growing concerns about oversupply and slowing demand in key regions. Base metals are down by an average of 49% from their February 2011 highs, while precious metals are down an average of 47% from highs in September of that year.
More recently, metals have also been hurt by a rise in the value of the dollar amid growing expectations of a U.S. rate rises. The move was confirmed Wednesday when the Fed raised the benchmark federal-funds rate--an overnight interbank lending rate--from near zero to between 0.25% and 0.5%.
As metals are priced in dollars, a stronger dollar makes them more expensive to buy for other currency-holders.
Shortly after 7 a.m. ET on Thursday, the WSJ Dollar Index was up 0.35% at 90.38.
Precious metals have been particularly hard hit by expectations of higher interest rates because they don't offer a yield.
However, the reaction in metals was more muted than some market participants had anticipated, partly because the rate rise was widely expected.
"It's been priced in," said Robin Bhar, head of metals research at Société Générale SA. "The markets were pretty well prepared for the expected."
Analysts expected metal prices to fall further in the new year as interest rates rise further.
"Maybe that will come to bear down on the market." said Mr. Bhar.
Among other precious metals, spot silver was down 0.4% at $14.105 an ounce, spot palladium fell 2.1% at $558 an ounce and platinum was 1.75% lower at $858.75.