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Gold recovers from biggest dip in 5 months after Fed rate rise

LONDON (Reuters) - Gold edged higher on Friday, recovering from its biggest daily loss in five months as stocks and the dollar retreated, but remained near multi-year lows after the U.S. Federal Reserve lifted interest rates for the first time in nearly a decade.

Gold jewellery is seen displayed for sale at a shop in a gold market in Basra, southeast of Baghdad February 14, 2015. Picture taken February 14, 2015. REUTERS/Essam Al-Sudani

The metal has recovered some lost ground after bottoming out on Thursday at $1,047.25 an ounce, within a few dollars of a near six-year low reached on Dec. 3.

Spot gold XAU= was up 0.6 percent at $1,057.51 an ounce at 1230 GMT, while U.S. gold futures GCv1 for February delivery were up $7.30 an ounce at $1,056.90.

The rate hike sparked a surge in the dollar and global stocks on Thursday, but led to a 2 percent slide in gold. Rising rates lift the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced.

Gold has tumbled 11 percent this year as investors awaited the rate rise. Now that it is out of the way, attention is turning to the pace of further increases.

“Hiking cycles aren’t always bearish for gold. The data is pretty mixed historically,” Macquarie analyst Matthew Turner said. “The Fed is more aggressive in its forecast of interest rate rises than the market, but so are they in their expectation of rising inflation. One will only come true if the other does.”

“That might support gold, or at least neutralise the hiking cycle.” Gold is often seen as a hedge against inflation.

In other markets, global stocks fell and the dollar sagged slightly, taking pressure off gold. [MKTS/GLOB]

The metal could revisit $1,000 an ounce for the first time in six years if it breaks below its early December low at $1,045 an ounce, according to technical analysts.

“If we can take the low out, which I don’t think is unreasonable, $1,033 is the next stop -- that’s the high from 2008 -- and then $1,006, and the $1,000 figure is really the level you should be talking about,” Credit Suisse analyst Christopher Hine said.

“It is achievable (by the end of the year),” he said.

Holdings of the world's largest gold-backed exchange-traded fund, SPDR Gold Shares GLD, fell another 4.5 tonnes on Thursday to 630.17 tonnes, the lowest since September 2008. That brings its monthly outflow to 25 tonnes.

Hedge funds’ net short positions in COMEX gold futures reached record levels this month.

Silver XAG= was up 0.5 percent at $13.77 an ounce, while platinum XPT= was up 0.2 percent at $845.58 an ounce and palladium XPD= was down 1 percent at $548.99 an ounce.

Additional reporting by A. Ananthalakshmi in Singapore; Editing by David Evans and Mark Potter