NEW YORK, OCTOBER 27, 2016 (Bloomberg): The Federal Reserve will probably raise rates in December and twice more in 2017, boosting the dollar and hurting gold, according to Singapore-based Oversea-Chinese Banking Corp., the most accurate bullion forecaster in the third quarter.
Gold will retreat each quarter next year, dropping to $1,100 an ounce in the final three months of 2017, Barnabas Gan, an economist at the lender, wrote in a commodities report. The metal for immediate delivery traded at $1,266.74 an ounce on Wednesday, about 15 percent above the target for the end of next year.
Bullion’s advance this year came as the Fed stayed its hand on raising borrowing costs after an initial increase last December, and the U.K.’s vote to quit the European Union bolstered demand for a haven. Federal Reserve Bank of St. Louis President James Bullard told reporters this week that the December meeting is the most likely for an increase, adding to expectations a hike is imminent. A gauge of the U.S. currency is trading near the highest since March.
Gold futures for December delivery fell 0.5 percent to settle at $1,266.60 an ounce at 1:45 p.m. on the Comex in New York, the second drop in three days.
The odds of a rate hike by the Fed in December, as seen by investors, have jumped in October.
OCBC’s view for a weaker gold price contrasts with the outlook from Mark Mobius, executive chairman at Templeton Emerging Markets Group. Bullion is set to advance next year as the Fed goes slow on increasing rates and the dollar remains subdued, Mobius told Bloomberg News in an interview last week.
In his forecast, Gan acknowledged “wildcards” that could bolster gold’s appeal as a haven, with the outcome of the U.S. presidential election in November topping the list, as well as the possible impact next year of the U.K.’s invoking Article 50 of the Lisbon Treaty, which will put Britain on a path out of the EU.