Gold is headed for the first monthly decline since May as rising speculation that the Federal Reserve may tighten monetary policy before the end of the year supports the dollar.
Bullion for immediate delivery dropped 0.2 percent to $1,320.44 an ounce at 3:04 p.m. in Singapore, according to Bloomberg generic pricing. The metal fell to $1,314.99 on Monday, the lowest level since July 26, and it’s down 2.3 percent this month.
Gold’s rally this year has been eroded by prospects for higher U.S. borrowing costs, damping demand for non-interest bearing bullion while buoying the dollar. Fed Chair Janet Yellen said on Aug. 26 the case for tightening had strengthened and her deputy, Stanley Fischer, said an increase next month is possible. Fed funds futures indicate a 61 percent chance of a move in December from a low of 8 percent in June.
“Even though it’s falling because of what happened during Yellen’s speech just last week, as well as the increased probability for the rate hike, all in all, safe-haven demand for gold should persist,” Barnabas Gan, an economist at Oversea-Chinese Banking Corp., said in a Bloomberg TV interview.
While the Singapore-based bank sees a single rate increase in December, gold will be supported by several “wild cards,” such as the U.S. presidential election and potential triggering of Article 50, which begins a two-year countdown to Britain’s departure from the European Union, according to Gan.
The Bloomberg Dollar Spot Index rose on Tuesday for the seventh time in eight days, hurting demand for bullion. The gauge of the U.S. currency is 0.2 percent higher in August, on course for the first monthly rise since May.
Holdings in bullion-backed exchange traded funds added 0.4 metric ton to 2,032.6 tons on Monday, data compiled by Bloomberg show.
In China, bullion of 99.99 percent purity rose 0.3 percent to 284.25 yuan a gram ($1,323.88 an ounce) on the Shanghai Gold Exchange.
On the Shanghai Futures Exchange, gold for December delivery advanced 0.2 percent to 284.50 yuan a gram, while silver rose 0.8 percent to 4,162 yuan a kilogram
Spot silver lost 0.9 percent to $18.7075 an ounce, and is heading for an 8 percent monthly decline.
Platinum fell 6.4 percent in August and palladium retreated 1.9 percent.