Investing.com -- Gold futures fell sharply amid a relatively flat dollar, as investors continued to brace for a likely interest rate hike by the Federal Reserve at its two-day meeting starting on Tuesday.
On the Comex division of the New York Mercantile Exchange, gold for February delivery wavered between $1,062.80 and $1,076.90 an ounce before settling at $1,063.30, down $12.40 or 1.15%. Gold remained near six-year lows from earlier this month when it dipped below $1,050. After opening the year around $1,185 an ounce in January, gold futures have fallen by nearly 10% in 2015. The precious metal is sharply below its 12-month high of $1,303.50 from January 21.
Gold likely gained support at $1,046.20, the low from Dec. 3 and was met with resistance at $1,092.40, the high from Nov. 16.
Investors have had ample time to price in a rate hike after a host of major policymakers, including Fed chair Janet Yellen, began to send strong signals last month that the U.S. central bank could raise short-term interest rates for the first time in nearly a decade. The Federal Open Market Committee opted to leave rates at near-zero levels earlier this fall amid severe global economic struggles, but will likely reverse course on Wednesday as the headwinds restraining economic growth continue to fade. A succession of strong employment data over the last two months has also prompted a wave of hawkish comments from key FOMC members.
On Monday, the CME Group's (O:CME) FedWatch placed the probability of a rate hike at 81.4%, up slightly from Friday's level of 79.4% at the close of trading. The tool, which is based on the CME Group's 30-day Fed Fund futures prices, is used to express the market's view on the likelihood of changes in short-term interest rates.
The Federal Funds Rate, the Fed's benchmark rate offered on interbank, overnight loans, has remained at its current level between zero and 0.25% since December, 2008, shortly after the start of the Financial Crisis. Any increase in the targeted range for the Federal Funds Rate is expected to be modest at 25 basis points. The FOMC last approved a rate hike in June, 2006. Yellen has continually asserted that the timing of lift-off will pale in comparison to the gradual path of upward moves over the next year.
Along with Wednesday's rate hike decision, the FOMC will also release its quarterly economic projection for the next several years. The projection includes forecasts for U.S. GDP, civilian unemployment and the PCE Price Index, as well as estimates on the timing of its next change in the Federal Funds Rate. In September, the FOMC projected that the Fed Funds Rate would reach 1.4% in 2016 and 2.6% in 2017 respectively, according to its median forecasts. A rate hike is viewed as bearish for gold, which is not attached to interest rates and struggles to compete with high-yield bearing assets.
The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, fell more than 0.15% to an intraday low of 97.31. Earlier this month, the index surged above 100 to a fresh 12-month high. Dollar-denominated commodities such as gold become more expensive for foreign purchasers when the dollar appreciates.
Silver for March delivery plummeted 0.169 or 1.22% to $13.715 an ounce.
Copper for March delivery inched down 0.004 or 0.17% to 2.113 a pound.