LONDON—Gold prices fell in London on Friday amid book-squaring ahead of the new year, after a volatile year for the precious metal.
The spot gold price was down 0.3% at $1,158.36 per troy ounce in midmorning European trading. Prices fell despite a weaker dollar, which is often bullish for precious metals. The WSJ Dollar Index, which measures the dollar against a basket of other currencies, was recently down 0.2%.
Gold looks set to end the year up more than 9%, despite a sharp decline in the final quarter of the year because of expectations of a stronger dollar and a rate increase from the Federal Reserve.
In July, haven buying following the British vote to leave the European Union pushed gold to a more than two-year high, with the metal jumping more than 6% in the single day after the vote in late June.
The impact of a Donald Trump victory in November, which some analysts forecast would provoke a similar rally, instead saw the metal slide dramatically as stock markets rallied. By late December, gold had fallen to a nearly 11-month low, and gold prices are down more than 11% over the last quarter.
“The decline experienced by the metal during December is largely due to the market tide favoring the U.S. economy which hopes for infrastructure and spending boost under a Trump administration, which has cemented expectations of higher interest rates and higher stock prices in 2017,” said Mihir Kapadia, head of Sun Global Investments.
In 2017, traders will be tracking competing themes. The Federal Reserve is expected to step up the pace of interest rate rises over the course of next year, which would put pressure on the precious metal, as it doesn’t bear interest. Persistent strength in the dollar could also put a damper on the metal.
“We think that there is a risk that the prices of gold and silver might fall further in the short term as the Fed hikes rates more aggressively in response to some of Trump’s more inflationary policies,” Capital Economics said in a year-end note.
Next year could also bring safe-haven demand for the metal, analysts have said, despite gold’s mixed response to the major political surprises of 2016.
Gold’s decline in response to Mr. Trump’s victory could be overturned if policy announcements threaten to raise geopolitical tensions, analysts have said, while a series of elections in Europe, including in France and Germany, could signal a further rise in populist parties and threaten the stability of the eurozone.
Other precious metals were mixed. Silver was down 0.06% a troy ounce, down more than 17% for the year. Platinum was up 0.03% at $906.50 a troy ounce, up just 1.7% for the year. Palladium was down 0.3% at $674.80 a troy ounce, but was up nearly 20% for the year.
