Gold falls as rate rise expectations grow (again)

The US dollar stretched to a three week high as traders renewed expectations of an interest rate rise after some bullish comments from Fed officials at the end of last week

gold bars
A solid US jobs report at the end of the week will likely weigh on gold

Gold eased backwards on Tuesday as traders assessed a stronger chance of a rise in interest rates after recent comments from the Federal Reserve.

Fed chair Janet Yellen said last week that the case for higher rates was strengthening, although any decision would be largely dependent on what upcoming data suggests about the US economy.

Vice chair Stanley Fischer even suggested on Friday that a hike could come as soon as next month.

Traders are already looking towards the monthly US job report due at the end of this week as the next major catalyst in gold prices.

A healthy jobs report will likely add more weight to the argument to increase interest rates.

“We believe there is an 80% chance that the Fed will increase the interest rate one more time this year,” said ThinkMarkets’ chief market analyst Naeem Aslam.

Mitsubishi analyst Jonathan Butler added: “It looks as though we’re going to see another pretty solid month of jobs gains, and that should mean that there’s a return [of expectations for] a September rise…or more realistically, a December rate rise.”

“That should weigh on gold,” Butler said.

The precious metal is particularly sensitive to a rise in rates as it increases the opportunity cost of holding non-yielding commodities such as bullion.

A hike would also bolster the US dollar, which the yellow metal is denominated in.

Shortly after UK market close, gold was down us$6 to US$1,317, silver was down 21c to US$18.62, while platinum was also down US$19 to trade at US$1,055.

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