As a non-interest-paying asset, gold demand could take a hit from higher rates, while a stronger greenback makes dollar-denominated gold more expensive for holders of other currencies. Holdings in SPDR Gold Trust, the top gold-backed exchange-traded fund, fell 0.43 percent to 689.28 tonnes on Monday, the lowest in three weeks. The fund hasn’t seen any inflow since Oct. 19.
Speculators have trimmed bullish bets on gold from an 8-1/2-month high, data last week showed. Charts point to further price declines, according to analysts. The next support for gold comes in at $1,121, ScotiaMocatta analysts said in a note. While gold holds below $1,156, there is a risk of a deeper correction to October low near $1,105, they said.
Traders will be eyeing this week’s US economic data closely, particularly the bellwether nonfarm payrolls report on Friday, for clues on whether or not the Fed will move before the end of the year.
“We are back to watching US data as the next six weeks’ output most likely will determine the output of the December FOMC meeting,” Saxo Bank head of commodities research Ole Hansen said.
The payrolls report will be particularly scrutinized, he said. “A stronger than expected number will put the cat among the pigeons, considering it would be the first above-expectation number since May.”
Rising interest rates would pressure gold as they would lift the opportunity costs of holding non-yielding assets while boosting the dollar, in which bullion is priced. A jump in the dollar heaped pressure onto gold on Tuesday, with the US unit rising 0.7% against the euro.
US economic data on Monday was tentatively supportive of a rate hike this year. Manufacturing activity in October hit a two-and-a-half-year low, but a rise in new orders offered hope that the US might be over the worst.
Other data showed construction spending rose in September to its highest in seven-and-a-half years, indicating that the economy remained on firmer ground despite signs of consumer spending cooling. Among other precious metals, silver was down 0.9% at $15.24 an ounce, platinum was down 1.6% at $957.20 and palladium was down 1.5% at $637.75. Copper was trading at 2.33.5 adding 16 points. Stronger Chinese appetite for copper in recent weeks is unlikely to last, according to industry sources.