The USD is rising against the major currencies on the increasing expectations of the rate hike in the United States.
According to CME Group's, last Friday, probability of the rate hike in December was estimated at 69%, and December futures for gold at COMEX closing price fell by 0.2%, to 1255.50 USD per ounce. The index WSJ has grown by 0.1%, up to 88.52, which is close to the 7-month highs.
In anticipation of the interest rate increase in the USA, gold is losing investment attractiveness, giving way to the USD and safer assets, such as government bonds.
The rise in the USD also causes the decline in gold, as the gold price is denominated in U.S. currency and the borrowing costs for gold’s acquisition and storage are growing.
However, gold prices are supported by the major world’s Central Banks (except the US Fed), which prefer soft monetary policy.
So, this week, precious metals market will be focused on the ECB meeting, devoted to the monetary policy in Eurozone, which will take place on Thursday. Interest rate decision by the ECB will be known at 14:45. Current core interest rate is at the level of -0.4% (refinancing rate for commercial banks. The ECB has been lowering the rate since 2008 from $4.25% to the current record lows. In addition, the ECB continues QE program in Eurozone. Asset purchase program of the ECB is 80 billion euros (88 billion USD). This policy has not led to the desired improvement of macro-economic indicators, or inflation rate. ECB President Mario Draghi may announce changes to the program, which should be completed in March 2017. Expectations of the new measures by the ECB may increase volatility in the markets.
The purchase of gold in bars has also increased. According Pure Gold Company, weekly purchase of gold bars has increased by 24% due to concerns of slowdown of the Chinese economy and sharp decline in the price of gold (by almost 10%) since mid-July.