Gold Sinking With Rising Dollar

Gold were seen sliding in morning trading in Europe on Tuesday. In Asia, gold appeared to be gaining only to ease at the close. Increased expectations of a near-term increase in U.S. lending rates have much to do with the pressure on gold this week. The question is how low these expectations can force the metal before it hits another bottom.

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Gold futures for December delivery had touched a session low of $1,322.55 a troy ounce on midmorning trading in Europe Tuesday.  Gold fell to a low of $1,317.20, thus hitting a trough last seen on July 26.

In Asia, gold retreated only 0.06%. Besides a stronger dollar due to an increased likelihood that the Federal Reserve will raise lending rates at least once this year, upbeat data from Japan also seemed to weigh on gold trading.

Stronger dollar

The U.S. dollar index was up 0.21% to 95.73 in morning trading in Europe. The index rallied to a 2-week high of 95.81 on Monday, supported by bullish comment by the Fed Chair, Janet Yellen, regarding the rate review pathway. In Tuesday’s morning market action in Europe, EURUSD was trending down 0.15%, while USDJPY advancing 0.45%. GBPUSD was down 0.21%, while AUDUSD was skidding 0.28% around the same time.

Fed’s comment on a rate hike

The Fed is gearing up for at least one rate hike before the end of 2016, or so traders believe. The Fed itself, however, has been known to provide many a false signal in the past. Yellen provided a hint of a near-term rate review pathway in a speech at an annual meeting of the central bank at the end of last week.

However, the Fed will closely watch the quality of economic data being reported because it said that data will influence its eventual rate review move, as it always does. As such, investors will be keeping a close eye on the U.S. nonfarm payrolls report expected out on Friday. Economists are expecting 180,000 increase in nonfarm jobs. Any number substantially above this will increase the chances of a rate hike. Any number below could give an excuse to back off once again.

Japanese upbeat data

Japan reported that household spending declined 0.05% in July on a year-over-year basis, less than the 0.9% drop that economists predicted. However, household spending rose 2.5% on month-over-month basis, exceeding the 1.1% increase that economists modeled.


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