[SINGAPORE] Gold ticked up on Wednesday as the dollar pared some of its recent gains, but the metal remained under pressure near a three-month low as outflows from bullion funds and an anticipated US rate hike weighed on the market.
Assets in SPDR Gold Trust, the top gold-backed exchange-traded fund (ETF), fell to 663.43 tonnes on Tuesday - the lowest since September 2008 when Lehman Brothers filed for bankruptcy kicking off a global financial crisis.
Investors have been pulling out of bullion funds on increasing bets the US Federal Reserve would raise interest rates this year. Bullion as a non-interest-paying asset could take a hit to demand with higher rates.
"The ETF market is suggesting more pain (for gold) in coming days," ANZ analysts said in a note.
Spot gold rose 0.2 per cent to US$1,091.70 an ounce by 0358 GMT. The dollar index fell 0.5 per cent after hitting a seven-month high in the previous session.
But the metal was within striking distance of US$1,084.90 reached on Friday, the lowest since Aug 7, after a robust US nonfarm payrolls report boosted bets the Fed would hike interest rates at its next meeting in December.
The employment report released last week has strengthened the conviction of economists who have been forecasting a December interest rate increase, according to a Reuters poll published on Tuesday.
The survey of over 80 leading economists found a 70 per cent median chance the U.S. central bank would raise its short-term lending rate at its final meeting of the year, next month.
The technical picture for gold is weak, and the next support is at the 5-1/2-year trough of US$1,077 an ounce hit in July, analysts have said.
"A looser ECB and tighter Fed may not be entirely priced into gold and we could see further downside. Still, we sense sellers may be puttering out of momentum," said HSBC analyst Jim Steel, adding that physical demand from Asia could be increasing.
Reuters reported exclusively on Monday that a consensus was forming at the European Central Bank to cut the deposit rate further, to weaken the euro and push inflation.
Gold's recent sharp decline has stoked some physical demand in top consumer Asia. Premiums on the Shanghai Gold Exchange, an indicator of demand in China, was at a healthy US$4-$5 an ounce on Wednesday.
Sustained physical demand could provide a floor for declining gold prices.