By Katherine Dunn
LONDON--Gold prices fluctuated between gains and losses in European trading Tuesday as investors await further signals on the strength of the U.S. economy that would determine the timing of a possible interest rate rise by the Federal Reserve.
Spot gold was up 0.09% at $1,173.90 a troy ounce in morning trading on the London spot market, benefiting from a weaker dollar, after closing down for two consecutive days following last week's nearly four-month high.
Because gold doesn't bear interest, the precious metal could struggle to compete with other investments, including Treasurys, when interest rates increase. As a result, the longer rates appear to be pinned near zero, the more attractive gold could become to investors.
"In terms of fundamentals, nothing has changed," said Simona Gambarini, a commodities economist at Capital Economics.
Every piece of U.S. economic data is having an outsize impact on the price of the metal, she said. The U.S. Fed has long said it would rely on economic data to guide the timing of a possible rate increase, which analysts increasingly believe won't come this year. As a result, each set of numbers is closely watched.
Last week, disappointing retail data from the U.S., spurred a rally that pushed gold prices to levels not seen since late June. Investors will now be watching for the next set of nonfarm payroll numbers, due early next month, for the next major signal on the strength of the economy, analysts say.
Interest-rate speculation is also moving gold through its effect on the dollar. This morning, the WSJ dollar index was down 0.22% against a basket of currencies. When the dollar is weaker, gold becomes more affordable for investors who hold other currencies.
"[Today is] mainly a currency-driven performance," said Carsten Menke, a commodities research analyst in London at Julius Baer.
Investors are also wondering what impact physical demand will have on prices, Mr. Menke said.
"I think the jury is very much out on that," he noted.
That demand would likely come from safe-haven buying in China, as its economy continues to weaken, analysts say. Official statistics from China, in the next few days, could add to the picture of physical demand.
Prices for precious metals were mixed on Tuesday. Spot silver was up 0.06% at $15.85 an ounce, spot platinum was down 0.21% at $1,012.50 an ounce and spot palladium was down 0.59% at $864.05 an ounce.
