Gold Falls for Third Straight Day Under Dollar Pressure and Rate-Hike Fears

Gold prices keep falling on the world market. With the US dollar moving higher and the possibility that the country's central bank, the Federal Reserve, will raise interest rates, the precious metal fell for a third straight day on Thursday (12 November). Early in the day's trading, the price dropped to its lowest level in more than a week.

According to a Reuters report, at 3:12 pm Bangladesh time on Thursday the spot price of gold fell 1.4 percent to 3,931 dollars 54 cents per ounce. Earlier in the day the price had dropped to its lowest level since 4 November.

Meanwhile, the futures price of gold for December delivery in the United States fell 1.6 percent, bringing the price to 3,936 dollars 80 cents per ounce.

Ole Hansen, head of commodity strategy at Saxo Bank, said continued inflation in the United States and the tough stance of several Fed officials in favour of raising rates have increased selling of gold in the market. As a result, the price has fallen below the important support level of 3,970 dollars.

Hansen also said that after inflation data came in higher than expected, discussion has intensified about the possibility of a 50-basis-point rate increase at the Fed's policy meeting in December. However, energy prices have fallen significantly in recent times, which could help ease inflationary pressure in the coming months.

According to data released on Tuesday, US consumer inflation rose more than expected in October. As a result, the US dollar reached its highest position in 19 months. At the same time, expectations that the Fed may raise rates further have increased investor interest in the dollar.

Data from the Chicago Mercantile Exchange's FedWatch index show the probability of a 25-basis-point rate increase in December now stands at 89 percent. Meanwhile, the probability of a 50-basis-point increase, which was zero before the inflation data were released, has now risen to 11 percent.

Gold is generally considered a safe investment against inflation. But when interest rates rise, gold loses appeal as an asset that pays no interest. A stronger dollar also makes gold more expensive for buyers using other currencies. These factors have created downward pressure on gold prices in the international market.

Investors are now waiting for US producer price index data due on Friday to get a sense of the future path of interest rates.

Meanwhile, on Wednesday Bank of England policymaker Megan Greene said that if wage growth remains high for a long time and firms pass higher costs into product prices, inflationary pressure could increase. She said monetary policy needs to be tightened early to deal with that risk.

Alongside gold, prices of other precious metals also fell on Thursday. In the spot market, silver fell 1.3 percent to 50 dollars 99 cents per ounce. Palladium fell 0.2 percent, to 1,025 dollars 81 cents per ounce. On Wednesday, palladium had risen to its highest level since 22 October.