Gold touched its lowest in 8-1/2 months on Thursday as the dollar jumped to a four-year peak after the Federal Reserve indicated it could raise borrowing costs faster than expected. The Fed on Wednesday renewed its pledge to keep interest rates near zero for a "considerable time", but its new projections suggested officials were positioning for a potentially faster pace of rate hikes than they had envisioned when the last set of forecasts was released in June.
Spot gold fell to its lowest since January 2 at $1,216.01 an ounce early on Thursday and was trading unchanged on the day at $1,222.54 by 1429 GMT. The metal had lost 1 percent in the previous session. "The dollar did its job again and gold wiped out the entire eight months' gains and we are now back where we were at the beginning of the year," Sharps Pixley CEO Ross Norman said.
"Even though the fourth quarter is the traditional strong period for physical demand, I don't see the market going significantly higher or lower ... I wouldn't be surprised to see prices around $1,230/$1,240 at the end of the year." US gold futures slid 1 percent to $1,223.20. "Technically gold looks vulnerable, with the psychological $1,200 and the critical $1,180 now a real possibility of being tested in the coming days or weeks," MKS Group dealer Jason Cerisola said.
The dollar rose to its highest since July 2010 against a basket of currencies after the Fed raised its projections for rates over the next two years and announced a further $10 billion reduction in its monthly bond purchases, leaving the programme on course to end next month.
Before Thursday, gold had dropped for four sessions out of six on worries of an early US rate increase. The metal has benefited from low interest rates in the years after the credit crisis in 2008, as these encouraged investors to put money into the non-interest-bearing metal. But as the US economy normalises and interest rates are projected to rise, gold investment interest is unlikely to return in the West, Thomson Reuters GFMS said in its 2014 Interim Gold Report.
Prices are set to average $1,270 an ounce this year, down from $1,410 in 2013, and should bottom out between $1,170 and $1,200 in 2015, it said. Any short-term support for gold prices could come from a pick-up in physical demand in Asia as a drop towards $1,200 an ounce may attract bargain hunters, dealers said.
Premiums in top buyer China picked up on Thursday, climbing to $5-$6 an ounce, up from about $4 in the previous session. Silver was down 0.1 percent at $18.44 an ounce, having touched its lowest since June 2013 at $18.27. Platinum was down 0.2 percent at $1,342.24 an ounce, while palladium fell 0.5 percent to $825.