This week’s expected rate hike by the Federal Reserve “won’t spell the end of the pain being felt by gold, copper and other metals,” The Wall Street Journal warns.
Some experts warn the metal's price could soon dip below $1,000.
The rate hike itself isn’t as important as two other variables: the pace of future rate increases and how this affects the dollar, the Journal reported.
“But no matter what happens this week, metals are fighting pessimism on multiple fronts. China’s slowing economy and the oversupply in many markets have ensured the Fed isn’t the only sponsor of the current gloom,” the
Journal explained.
Metals have been falling since the peak of the commodities boom in 2011, as investors reacted to oversupply and falling demand growth in key buyers like China.
The dollar has surged in 2015 as investors prepare for higher rates in the U.S. Currencies typically gain when interest rates rise, as money moves into a country to take advantage of higher yields, the Journal explained.
Gold and silver, in particular, are expected to feel more pressure as monetary policy in the world’s biggest economy tightens.
“Potentially, before the end of the year we see [gold at] $1,000 an ounce,” said Bernard Dahdah, a precious-metals analyst at Natixis.
Silver typically trades in very close alignment with the gold price. Swiss bank Julius Baer expects the metal to trend lower after the rate increase, hitting $13.5 an ounce by the end of next year.
Gold has lost 9% since July and silver is down almost 12% in that period.
Spot gold recently was at $1,068.91 a troy ounce. Spot silver was at $13.751 an ounce.
Should the Fed take a more cautious approach to rate increases, these metals would see the biggest rebound, analysts said.
“In this case, we could see gold climbing [back] up to $1,090 an ounce,” said Heraeus Metals Germany GmbH & Co. KG, which trades precious metals, in a note.
To be sure, other experts warn that gold might dip below $1,000.
Societe Generale SA has warned that gold bullion will probably drop to $955 an ounce by the end of 2016 as the U.S. central bank raises borrowing costs this week and follows that with three further hikes next year.
Head of Global Asset Allocation Alain Bokobza told
Bloomberg that the target suggests prices may sink about 10 percent to the lowest since September 2009.
Gold is heading for a third annual loss as U.S. policy makers prepare to raise rates for the first time in almost a decade, boosting the dollar and cutting the appeal of bullion.
Traders are pricing in a 78 percent chance the Federal Open Market Committee will raise borrowing costs. Bokobza said that, while liftoff on Dec. 16 is widely priced in, gold will still retreat over the coming year as rates continue to rise.
“We are looking more at the 2016 panorama, in which the Fed continues to tighten and the U.S. economy delivers reasonably well,” Bokobza said. “That does not argue for a higher gold price. Gold will be a casualty.”
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