Gold drops on stronger dollar, Fed concerns

Gold prices dropped to a two-week low on Thursday. Moreover, a stronger U.S. dollar and expectations of big interest rate increases from the Fed diminished the metal’s appeal.

Spot gold inched down 0.3 percent at $1,691.63 per ounce, as of 0312 GMT, after touching its lowest since Sept. 1 at $1,689.78 earlier in the session.

U.S. gold futures fallen 0.4 percent to $1,702.40.

“The Fed needs to shock the economic system hard and the chance of a 100-basis-point rate rise is a very real possibility,” director at corporate advisory firm AirGuide Michael Langford stated.

The dollar index inched up towards recent peaks. As hotter-than-expected inflation data boosted bets for even more aggressive monetary policy tightening by the Fed.

Fed funds futures are putting prices in a 37 percent chance that the U.S. central bank will hike rates by 100 basis points at its policy meeting next week.

“A 100-basis-point rate rise will see gold break below $1,680/oz,” Langford added.

Holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, dropped 0.24 percent to 960.56 tons on Wednesday from 962.88 tons on Tuesday.

“Outflows from gold-backed exchange traded funds suggest investors are reluctant to hold the precious metal in the short term,” analysts at ANZ noted.