Daily Gold Update

Source:Bill Musgrave, American Gold Exchange

Austin— Gold closed 3% lower, settling at a 10-month low near $1,229, as the dollar rallied again behind yesterday's hawkish rate projection from the Fed, reducing demand for alternative stores of value. Today's drop extended yesterday's 1% after-hours loss by another 2%.

The FOMC boosted interest rates by a quarter-point yesterday and signaled its intention to raise rates by the same amount three times in 2017. In addition, the committee increased its long-term rate projection for 2018 and 2019, implying a similar schedule of annual hikes for the next three years.

The aggressive shift in rate outlook boosted the dollar by as much as 1.5% against major rivals, propelling it to the highest level in nearly 14 years. A stronger dollar weighs on gold and other commodities denominated in it for international trade by making them more expensive overseas.

The case for additional hikes next year was strengthened by inflation data released by the Labor Department showing the Consumer Price Index rose 0.2% in November to log its biggest 12-month gain since late 2014.

The buck has now gained 5.1% since Donald Trump's election, fueled by speculation that his campaign promises to slash regulations and corporate taxes while rebuilding infrastructure will balloon the national debt and fuel much higher inflation. While it may weigh on gold in the short term by causing the Fed to tighten monetary policy and thereby lift the dollar, rising inflation is likely to be bullish for gold in the longer term as investors seek hedges against higher prices.

The other precious metals also fell hard, with silver plummeting 7.2% from yesterday's close while platinum and palladium dropped 3.7% and 3%, respectively.

At the Comex close: February gold plunged $33.40 to $1,129.30; March silver lost $1.23 to $16; January platinum fell $35 to $905.80; and March palladium slid $22 to $710.15 an ounce.