The statement from the Federal Open Market Committee (FOMC) in mid-week that an interest rate hike is likely in December knocked the props out from under a budding gold rally.  Gold prices dropped about $40 by early Friday.

The Fed held interest rates steady at near-zero, but the language of its statement turned more hawkish, suggesting a probable increase in interest rates at the December meeting. 

The statement included language referring to a rate increase “at its next meeting” based on “realized and expected” progress in reaching goals.

The announcement spooked hedge funds, who liquidated 345 tonnes of gold futures positions the following day, sending gold prices tumbling.

Ole Hansen, head of commodity strategy at Danish bank Saxo noted on Thursday that despite the selloff, gold was holding at a support level of $1,148 but warned that “failure to hold this level would attract some additional long liquidation as a break below $1,140 an ounce could signal a reversal of sentiment.”

Gold prices, which had reached above $1,180 on Wednesday prior to the Fed news, dropped to around $1,140 by the early Friday session.
   
Barrick Still Bullish on Gold Outlook Despite Annual Decline

Although gold appears to be headed for its third straight annual decline, the world’s biggest gold producer remains bullish, expecting a rebound as early as next year.

Kelvin Dushnisky, president of Toronto-based Barrick Gold Corp., believes central bank purchasing and insufficient supply to meet demand will drive the turnaround.  This week, Barrick reported third-quarter earnings that beat analysts’ expectations, citing lower costs and higher production that helped offset weaker gold prices.

 “Even beginning next year we could start to see an increase in the price,” Dushnisky said, adding that gold is facing some “choppiness” in the near term, “but medium and longer term we’re very bullish.”

Gold prices retreated more than 5% over the past year as the U.S. economy gave signs of picking up, reducing demand for the yellow metal as a safe haven as an improving economy suggested impending interest rate increases and a stronger dollar. 

However, geopolitical turmoil around the globe prompted central banks to buy more gold.  In September, Russia bumped up the pace of its gold acquisitions for the second month, adding the most gold to its reserves in a year, and China began reporting increases in its gold holdings.