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Gold dips after strong US data lifts dollar

[NEW YORK] Gold dipped on Thursday after strong US economic data lifted the dollar and underlined expectations that US interest rates would be hiked.

Spot gold dropped 0.34 per cent at US$1,270.01 an ounce by 2.11pm EDT (1811 GMT), while US gold futures for December delivery settled down US$3.60, or 0.3 per cent, at US$1,273.20 per ounce.

The dollar index rose to a 2-1/2-month high after data showed the US trade deficit narrowed in August as exports of goods and services rose to a more than 2-1/2-year high, while jobless claims fell more than expected.

"The market is focusing on rate hikes, stock markets, a tad stronger dollar and bond yields that have been moving up in expectation of a potential tax deal and rate hike in December," said Ole Hansen, head of commodity strategy at Saxo Bank in Copenhagen.

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Expectations of monetary tightening were also supported by Philadelphia Federal Reserve Bank President Patrick Harker saying he was still penciling in one more rate hike this year and three next year.

Higher interest rates typically boost the dollar and aid bond yields, adding pressure on dollar-denominated, non-yielding gold.

However, the long-term trend in annual US economic growth may be as low as 1.5 per cent, San Francisco Federal Reserve President John Williams said, a somber view implying perpetually low interest rates and a difficult hurdle for the Trump administration's promised economic surge.

Investors await more on Friday from US non-farm payrolls data, with investors expecting a slowdown in new jobs due to disruptions from two major hurricanes in September.

UBS cut its average forecast for gold for 2017 to US$1,270 from US$1,300 taking into account the likelihood of a December rate hike weighing on the market, metals strategist Joni Teves said in a note.

"Gold is unfortunately still seeing some headwinds from lower coin sales due to lack of price movement on the upside,"said George Gero, vice-president of RBC Capital Markets in New York.

In other precious metals, silver rose 0.3 per cent at US$16.62 an ounce.

Palladium was up 2.2 per cent at US$942.10 per ounce after moving last week to a premium over sister metal platinum, which dropped 0.3 per cent at US$909.70 per ounce.

"The overall direction of that spread will be determined by gold, whether it manages to find support," Mr Hansen said.

"If it does, platinum has potential for better upside than palladium, given the higher correlation between gold and platinum," he added.