Gold and SPDR Gold Trust (ETF) (NYSEARCA:GLD) prices fell in Asian trading on Wednesday and were trending lower in morning trading in Europe. Though the prevailing conditions favor a gold rally, traders appear to be booking profits after recent gains in the price of the yellow metal.
Prices of gold futures for December delivery declined 0.17% to $1,370.25 a troy ounce in Asian trading. In European trading, gold prices sank to a session low of $1,368.65 a troy ounce in the morning hours.
On Tuesday, gold soared to hit a 28-month high. That has provided an incentive for traders to take profits.
Eyes on U.S. data
But cautious trading in gold could also be seen in Asia and Europe ahead of U.S. economic data later in the day. Update on U.S. nonfarm jobs is expected to provide clue about whether the Federal Reserve will accelerate its lending rates review or take a more patient path to raising the rates.
Higher interest rate hurts gold prices, first because it would strengthen the dollar and make dollar-denominated gold more expensive for foreign traders. Second, high interest rate get investors attracted to yield bearing assets, thus causing them to turn attention away from safe-havens such as gold.
Investors are not sure what to expect, so they are trading gold cautiously.
Favorable conditions for gold to flourish
Outside of the uncertainty over U.S. economic data, prevailing conditions appear to be favorable for gold to flourish. In Japan, the government’s stimulus package has turned out be less than bold as only a small fraction of the nearly $277 billion approved by the cabinet is fresh spending.
The move by the central bank in Australia to trim interest rate to near bottom at 1.5% also provides an incentive for traders to accumulate as the move signals growing global economic uncertainty.
Fears of further weakening of crude oil and iPath S&P GSCI Crude Oil Total Return (NYSEARCA:OIL) prices should also inspire appetite for gold. Oil prices have been rattled by rising oil inventory levels in the U.S. and efforts by the Nigerian government to make peace with militants in its oil region, a move that could increase the country’s oil supply to the global market.