Gold futures on the COMEX division of the New York Mercantile Exchange dropped nearly 3 percent Thursday to settle at their lowest level since early February as the Federal Reserve's U.S. interest-rate hike and the potential for more aggressive moves in the new year fueled a rally in the dollar.
The most active gold contract for February delivery fell 33.9 U.S. dollars, or 2.91 percent, to settle at 1,129.80 dollars per ounce.
Gold was put under pressure as the U.S. Federal Reserve announced after the market' s close on Wednesday that it would raise its key interest rate from 0.50 to 0.75.
Higher interest rates typically make the dollar stronger, which can put pressure on commodities that are pegged to the currency, such as gold. In addition, noninterest-paying assets like gold lose their luster as interest rates increase.
The Fed news fueled a rally in the ICE Dollar Index DXY, +0.90 percent which shot to a 14-year high Thursday.
Brien Lundin, editor of Gold Newsletter, said that the market "consensus believes that a resurgent Trump economy will force the Fed to live up to their predictions this time around."
But "rates are rising in the face of the most over leveraged global economy in world history," and he believes that trend will either reverse, or will create havoc so that, forcing the Fed and other central banks to, at some point, "resort to more easing."
"Monetary volatility lies ahead, and gold will shine in that environment," he said.
Bullion had already fallen sharply in the run-up to the Fed meeting after Republican candidate Donald Trump's election to the U.S. presidency sparked a rally in the dollar and a rise in assets seen as higher risk, like stocks, at gold's expense.
Holdings of the world's largest gold-backed exchange-traded fund, SPDR Gold Shares, are down about 10 percent from mid-November.
The precious metal was put under further pressure as the weekly jobless claims report also released on Thursday by the U.S. Department of Labor showed initial jobless claims decreasing by 4,000 to a 254,000 level, a figure which was within expectations. Analysts note that this is in line with the existing trend and indicative of strength in the U.S. labor market.
Silver for March delivery fell 126.3 cents, or 7.33 percent, to close at 15.958 dollars per ounce. Platinum for January delivery dropped 47.2 dollars, or 5.02 percent, to close at 893.60 dollars per ounce.
