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Gold heading for fifth straight day of losses

Published: 15:27 24 May 2016 BST

The Citibank logo, the bank believes the price of gold could continue to drop

The price of gold was on course to fall for a fifth consecutive day on Tuesday as the prospect of a Fed interest rate hike lingers.

The metal hasn’t fallen for five consecutive days since November last year.

Gold has dropped 2.8% since the “hawkish” minutes of the Federal Open Market Committee’s April meeting were released almost two weeks ago.

The minutes were interpreted by many as suggesting a rate rise could happen in June, much earlier than previously anticipated.

Higher interest rates tend to strengthen the dollar, which in turn cuts the demand for gold as an alternative investment.

Comments from the San Francisco Fed’s John Williams that two to three rate rises this year would be “about right”, and similar remarks from the Philadelphia Fed’s Patrick Harler, have added to investor’s fears over recent days.

 

Citibank warns on gold prices

The decline in the gold price hasn’t gone unnoticed at Citibank either and it thinks the precious metal could fall back to December levels of sub-US$1,100.

Citi Research says gold has benefitted from a softer dollar, which has been steadily strengthening over recent weeks.

Back in December, the spot dollar index – which measures the relative strength of the dollar compared to other currencies – was at a high of 100.5, while the gold price was hanging in the US$1,050.

The dollar index fell to a low of 91.9 at the start of this month but currently sits at around 95.3.

Citi warns that there is “no reason at all why gold should not once more trade at US$1,050 an ounce if [the dollar index] rises back up to the 100 level.”

It also said that there is “nothing to prevent gold falling below US$1,000 an ounce if [the dollar index] rises above the 100 level.”

 

 

Shortly before the UK market close, gold was down US$12 or 1% to US$1,236, silver was down 6c to US$16.30, while platinum was also down US$6 to US$1,002.

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