Gold has its worst week for months in the face of a relentlessly rising dollar and strong US economic data.
More confirmation of the buoyancy of the US economy came Friday as retail sales in August rose at their fastest since April.
Retail sales account for about a third of US consumer spending, which is by far the most important component of US economic activity.
It added to an already nervous backdrop for gold investors ahead of next week’s meeting of the US Federal Reserve’s interest rate meeting.
An end to the US Fed’s quantitative easing in October is already taken as read by the market, but strong US economic data has led to the expectation that interest rates will now rise earlier than previously thought.
Speculation was rife all week that the Fed will take a more hawkish stance this time because of the stream of healthy economic statistics.
While that remains to be seen, the dollar was rising on the back of it and gold, which traditionally moves in the opposite direction to the US currency suffered as a consequence.
An hour in to trading on Friday the spot gold price was trading at US$1,229, down US$11 on the day and close to an eight month low.
Broker Commerzbank said the gold price has now dropped below the corridor of between $1,240 and $1,330 per troy ounce in which it has been trading for six months.
“It would appear that some market participants assume that the US Federal Reserve will signal an interest rate hike in the near future at its meeting next week, thus lending further buoyancy to the US dollar. “
The good US retail sales figures made such a step that bit more probable, it added.
Commerzbank said the downside pressure on gold prices in recent days clearly stemmed from the futures market, as exchange traded funds (ETFs) had seen inflows again over the past few days. Bloomberg suggested as much as 68 tons had flowed back in the middle of the week.
Heavy selling by ETF holders was a major reason the price of gold fell by 28% in 2013, though this selling has subsided markedly in the current year.
ANZ Bank added; “A stronger USD and higher bond yields have been an issue for gold all week, and remain a headwind going forward.
“With geopolitical concerns [Ukraine and Iraq] also easing, there seems to be little support for gold in the short-term.”