Gold Prices Fall on Rate Hike Expectations

December Comex Gold futures are on track Friday to finish the week lower as investors positioned themselves against a possible interest rate hike by the U.S. Federal Reserve on September 17.  The Fed is set to begin a two-day policy meeting on Wednesday, during which they will decide whether to raise interest rates for the first time since 2006.

While investors hedged their bets in the gold market against a possible rate hike, EUR/USD saw things differently, choosing to bet against a rate hike. Although the futures markets are looking at a 25% probability to hike, the divergence between gold prices and the Euro only adds to the confusion in the marketplace.

The GBP/USD declined after official data in the U.K. showed weaker-than-expected construction output. U.K. construction output fell 1.0% versus an estimate of 0.5%. The last report showed a 0.9% gain.

The British Pound is set to close the week higher against the U.S. Dollar. The Sterling was underpinned by yesterday’s Bank of England monetary policy statement. In its statement, the BoE suggested that turmoil triggered by the slowdown in China has not altered its plans to raise interest rates.

Members of the Monetary Policy Committee voted eight to one in favor of setting rates at 0.5 percent. The minutes of the meeting added that the U.K. economy ‘remained strong’ and ‘it would be premature’ to draw firm conclusions from events in China.

Crude oil traded lower on Friday due to oversupply concerns and the lack of fresh news regarding the possibility of production cuts by OPEC. According to the U.S. Energy Administration, U.S. oversupply is put at about 2 million barrels a day.

In other news, the U.S. Producer Price Index showed a reading of 0.0%. This was slightly better than the estimate of -0.1%. Traders did not react to the report. Preliminary University of Michigan Consumer Sentiment fell from 91.9 to 85.7. Traders were looking for a reading of 91.4. This report reflects consumer concerns during the volatile time period triggered by the massive sell-off in global equity markets.