Gold down as Fed official's comments back Sept rate hike

[LONDON] Gold edged lower on Wednesday, hovering around a 5-1/2-year low as the dollar strengthened after comments from a Federal Reserve official added weight to the likelihood of a US interest rate hike as early as next month.

Atlanta Federal Reserve President Dennis Lockhart said it would take "significant deterioration" in the US economy for him to not support a rate hike in September, according to the Wall Street Journal.

Higher interest rates in the United States would increase the opportunity cost of holding gold, an asset that does not earn interest. The metal lost nearly seven percent of its value in July on the prospect of the first US rate hike in nearly a decade.

Spot gold was down 0.1 per cent at US$1,085.80 an ounce by 0923 GMT. Bullion breached an important support level at US$1,100 in a late July rout that pulled it as low as US$1,077, its weakest since February 2010.

US gold for delivery in December slipped 0.5 per cent to US$1,085.50 an ounce. "It is more likely than not that we see gold below US$1,000 in September, once the Fed announces its rate hike," Natixis analyst Bernard Dahdah said. "The five pillars that used to bolster the price of gold are now eroding: central bank demand has weakened, Indian consumption has also been weaker since 2013, US quantitative easing has ended, exchange-traded funds have become a source of supply because investors are selling and Chinese demand is not as strong as it used to be." Platinum and palladium wallowed near multi-year lows on a global glut and prospects of sluggish demand from the automotive sector.

Spot platinum fell 0.7 per cent to US$945 an ounce, close to US$940.50 on Tuesday, its lowest since February 2009. Palladium was unchanged at US$592.50, after hitting a near three-year low of US$586.33 in the previous session. "We suspect that we will see a steady grind lower across most commodity complexes, including gold, largely attributable to the strength of the dollar and poor technicals that will only encourage more funds to further increase their short side exposure," INTL FCStone analyst Edward Meir said.

The dollar rose to its highest since April against a basket of major currencies. The next main data event is the release of US non-farm payrolls on Friday. Before that, the ADP employment and ISM non-manufacturing surveys will be in focus.

Holdings of the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, dropped further on Tuesday to 21.56 million ounces, the lowest since September 2008.

Silver slipped 0.5 per cent to US$14.50 an ounce.

REUTERS