The prices of gold and the corresponding SPDR Gold Trust (ETF) (NYSEARCA:GLD) were drifting lower in premarket US trading and early morning trading in Europe on Wednesday after gold already slid in Asian trading hours. Recent comments by Federal Reserve Chair Janet Yellen that the case for a rate hike has strengthened continue to rattle gold trading. The Fed is expected to raise lending rates at least once before the end of this year, notwithstanding the fact that these expectations are constantly changing.
In early morning trading in Europe, prices of gold futures for December delivery had already dipped to a low of $1,312.95 a troy ounce. Gold slipped 0.09% to $1,315.25 in Asia.
In overnight trading in North America, gold eased 0.08% to $1,316.50, thus closing at its lowest price level since June 23.
Rising expectations of near-term rate hike
Gold has been under pressure this week amid rising expectations that the Fed is on track to increase rates as early as next month. Fed policymakers speaking to the media after Friday’s annual symposium of the central bank have repeatedly hinted that a near-term rate hike was in the cards.
The likelihood that the Fed will raise rates soon has bolstered the dollar, with the U.S. dollar index up nearly 0.03% to 96.08 in early morning trading in Europe on Wednesday. EURUSD retreated 0.06%, while USDJPY advanced 0.25%. USDCAD moved up 0.05% as AUDUSD rose 0.05%.
Improving sentiments of a near-term rate increase are causing traders to limit their exposure to gold, which is largely seen as a hedge against economic uncertainty and/or runaway inflation. Unlike bonds, gold doesn’t bear any yield and that means that it pays its holders nothing other than the gains from price appreciation. However, when rates go up, bonds become more attractive because of higher yields and lower prices. Bonds are at record highs already.
Attention on economic data
Gold traders will be keeping a close eye on the U.S. non farm jobs report due Friday. Economists predict that the U.S. economy added 180,000 jobs in August on top of 255,000 jobs added in the previous month. The quality of the August jobs data and other economic measures will influence the timing of the Fed’s rate hike, if and when it ever occurs.