Gold remained under pressure last week despite a softer dollar as concerns grew that the Federal Reserve is set to hike interest rates at its September meeting in the face of the unsettled markets.
Gold had an uncertain week, enduring five consecutive losing sessions before staging a recovery on Friday which was, however, still not enough to prevent the precious metal from a recording a loss of 2.2% on the week, the largest weekly loss in the past 5 weeks.
Gold for December delivery (GCZ5, -1.01%) picked up $11.40 on Friday to settle at $1,134 per ounce on the Comex. The yellow metal recorded an increase of 3.5% for the month while spot gold was trading at $1,133.98 an ounce.
INTL FCStone analyst Edwin Meir said, “We think gold will likely come under further pressure as we near the Fed decision, as investors coalesce around the notion that the central bank will indeed move [and raise interest rates].”
Meir is forecasting a 25-basis point increase in interest rates, adding to the potential for further downside risk for non-interest yielding gold in the short term.
Strong fundamental data such as a stronger than expected GDP of 3.7% as well as continuing jobless claim numbers below 300,000, growth in personal income and increasing consumer spending, are providing support for the U.S. dollar.
An increase in the interest rate would further strengthen the dollar (DXY, -0.27%) but would do no favor to dollar denominated commodities that become more expensive in local currencies as the dollar strengthens.
Positive data from the reports due this week, including the important nonfarm payrolls report, the unemployment rate and average hourly earnings which are due on Friday 4 September, will no doubt increase the possibilities of a rates hike.
Naeem Aslam, chief market analyst at Ava Trade, said that if the economic data releases show and “cement that the labor market is solid and wage growth has augmented, we could see a selloff for the precious metal.”
MT4 Chart: Gold