Gold prices were lower on the London spot market on Wednesday, as sustained fears of an impending US Federal Reserve interest rate rise and a slightly stronger dollar quashed investor demand.
Spot gold was down 0.5 per cent at $US1,094.88 a troy ounce in morning European trade--fluctuating at the lower end of a narrow $US12 range.
"The market has not taken the opportunity to cover short positions or indeed used the decline in prices as a buying opportunity," Victor Thianpiriya, a commodity strategist at ANZ Research, said.
Investors have been selling gold on anticipation the Federal Reserve will soon raise interest rates for the first time in nearly a decade. Such a move would likely strengthen the dollar further and weaken demand for the metal. Many investors are therefore adjusting their expectations for the path of US monetary policy and its impact on gold prices. The precious metal doesn't pay interest or dividends and would struggle to compete with bonds and stocks that do when rates climb.
A stronger dollar, up against various currencies including the euro and yen, has also kept gold prices lower. Gold is a dollar-denominated commodity and it becomes more expensive for other currency-holders to buy when the greenback gains.
Compounding the slide, buyers in China and India, the world top consumers of gold, tend to snap up physical gold at a bargain when prices slide, but demand from these markets hasn't strongly materialised.
According to analysts, this is down to stockpiling in previous months, weak monsoons rains in India, and Chinese investors seeking returns elsewhere. India, together with China, accounts for around half of the global demand.
"Asians will not be there to pick up the slack in gold this time around," Howie Lee, an investment analyst at Phillip Futures, said.
Looking ahead, gold is $US20 away from a new five-and-a-half-year low and price risks for the yellow metal remain to the downside.
"Gold is now looking to stabilise at $US1,100 in the near term but the downward pressure it faces will likely be persistent," said Mr. Lee.
All the other precious metals were lower. Spot silver was down 0.3 per cent at $US14.784 an ounce, spot platinum was down 0.4 per cent at $US970.72 an ounce and spot palladium was down 0.9 per cent at $US620 an ounce.
