The metal had posted its worst weekly drop in nine weeks on Friday. But the gloomy sentiment dialed back last month following interest-rate cuts from China and the prospect of further monetary stimulus out of Europe and Asia.
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Rising interest rates tend to weigh on gold because they lift the opportunity cost of holding non-yielding bullion while boosting the dollar, in which it is priced. “Our economists are expecting the Fed to raise rates in December”, Macquarie analyst Matthew Turner said. That dented demand for relatively safer USA government debt, with the 10-year Treasury yield posting the biggest monthly increase since June. That said, the US futures market only increased the odds of a Fed rate rise in December from 35% to 50%, so it will take more positive economic data between now and then before a December rate rise becomes the market’s base-case scenario. Gold is expected to test support at $1,131, a break below which could cause a loss towards the next support at $1,119, said Reuters technicals analyst Wang Tao.
Readings on financial and worldwide developments – The Fed’s more hawkish language fuelled another surge in the US dollar, and this further strengthened the currency headwind that was already buffeting USA exporters while also inciting more volatility in emerging-market economies. “In the near term the market also needs a respite from investor liquidations if prices are to stabilise”, HSBC said in a note.
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Asian gold demand saw a few uptick towards the end of last week, as lower prices attracted buyers. But local premiums remained largely unmoved, a sign that demand had not picked up in a significant way, dealers said. Spot gold was down 0.4 per cent at $US1,141.36 an ounce at 3.23 pm EDT (0523 Saturday AEDT), after slipping to its lowest since October 9 at $US1,139.11, just above the 100-day moving average. This, coupled with outflows of 2.6 metric tons from gold exchange-traded funds on Friday, is weighing on the price, Commerzbank wrote in its comment.
