Gold sinks to 8-1/2 month low

LONDON, Sept 18 (Reuters): Gold touched its lowest level in 8-1/2 months on Thursday as the dollar jumped to a four-year peak after the Federal Reserve indicated it could raise borrowing costs faster than expected when it starts moving.
The Fed on Wednesday renewed its pledge to keep interest rates near zero for a "considerable time", but its new rate projections suggested officials were positioning themselves for a potentially faster pace of rate hikes than they had envisioned when the last set of forecasts were released in June.
Spot gold fell to its lowest level since Jan. 2 at $1,216.01 an ounce early on Thursday, before paring losses to trade up 0.1 per cent at $1,223.60 by 0930 GMT. The metal had lost nearly 1 per cent in the previous session.
"Gold wiped out pretty much all the gains from very early January ... I think that was to be expected given that this was the clearest indication yet of the intention to raise rates next year," Mitsubishi Corp analyst Jonathan Butler said.
"The fact that rates are going to have to rise fairly quickly in the second half, assuming that the Fed will keep them on hold probably until the middle part of next year, implies further weakness in gold for the long term."
US gold futures slid 1 per cent to $1,224.20.
"Technically gold looks vulnerable, with the psychological $1,200 and the critical $1,180 now a real possibility of being tested in the coming days or weeks," said MKS Group dealer Jason Cerisola.
The dollar rose to its highest level since July 2010 against a basket of currencies after the Fed raised its projections for rates over the next two years and announced a further $10 billion reduction in its monthly purchases, leaving the programme on course to end next month.
Before Thursday, gold had dropped for four sessions out of six on worries of an early US rate increase. The metal has benefited from low interest rates in the years after the credit crisis in 2008, as this encouraged investors to put money into the non-interest-bearing metal.
But as the US economy normalises and interest rates are projected to rise, gold investment interest is unlikely to return in the West, Thomson Reuters GFMS said in its 2014 Interim Gold Report.