Gold futures on the COMEX division of the New York Mercantile Exchange rose on Thursday as the U.S. dollar showed weakness during low-volume holiday trading.
The most active gold contract for February delivery rose 7.6 U. S. dollars, or 0.71 percent, to settle at 1,075.90 dollars per ounce. The precious metal was given support on a weaker U.S. dollar. The U.S. Dollar Index fell by 0.46 percent to 97.94 as of 17:00 GMT. The index is a measure of the dollar against a basket of major currencies.
Gold and the dollar typically move in opposite directions, which means if the dollar goes up, gold futures will fall as gold, measured by the dollar, becomes more expensive for investors. Gold's rise was capped by a report issued by the U.S. Department of Labor showing initial jobless claims falling by 5, 000 to 267,000. Analysts said the figure showed the labor market remains strong.
The precious metal's price came under further pressure as analysts believed the market remains unsure of when the next rate hike, from a 0.50 rate to a 0.75 rate will occur. The Fedwatch tool shows an implied probability indicating that the market believes that the Fed may raise rates from 0.50 to 0.75 during the March Federal Open Market Committee (FOMC) meeting.
The current implied probability of a hike from 0.50 to 0.75 is at 55 percent at the March meeting, and 10 percent at the January meeting. Analysts believed the goal of the Fed is to soak up some of the banks' 2.5 trillion U.S. dollars of excess reserves as the U.S. economy begins to recover. Banks become more willing to take risks in a bullish economy, and as a result could potentially release some of their excessive reserves, flooding the economy with cash, causing inflation.
The long-term trend for gold remains strongly bearish according to analysts as the Fed hiked its interest rate in December, amid expectations for a delay in the rate hike until 2016. An increase in the Fed's interest rate drives investors away from gold and toward assets with a return, as the precious metal bears no interest.
Until the December FOMC meeting there had not been an increase in the Fed's interest rate since June 2006, before the beginning of the American financial crisis. Silver for March delivery added 9.2 cents, or 0.64 percent, to close at 14.379 dollars per ounce. Platinum for January delivery rose 16.1 dollars, or 1.85 percent, to close at 884.20 dollars per ounce.
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