Gold traded slightly lower Tuesday, as it continued to struggle with the negative affect of recent announcements from the U.S. Federal Reserve that increased the possibility of an interest-rate increase this year.
Gold was trading down 0.24% at $1,132 in London trade, a four-week low.
Investors and analysts are watching U.S. economic data for further clues as to when the country’s first rate rise in almost a decade will come, but many believe that such numbers will give a patchy picture going forward, keeping pressure up on the precious metal.
Analysts see little reason to expect a solid recovery and predicts the market will stay either flat, or will fall, during the rest of this week.
The Fed hinted last Wednesday that a rate increase is still on cards at their December meeting. A recent run of weak U.S. economic data made many market players predict a rate increase wouldn’t happen until 2016. Since summer, this belief has served as the main driver for gold, triggering a mini-rally. The precious metal has a harder time competing with yield-bearing assets if rates rise.
Now, gold investors are watching every bit of U.S. economic data, looking for signs of weakness in the economy that could lower the likelihood of monetary tightening.
“Many investors hoped, the PMI manufacturing index, released yesterday, could bring such support for the market, but this failed to become a driver,” said Carsten Fritsch, an analyst at Commerzbank.
The U.S. manufacturing sector expanded at its slowest pace in more than two years in October. The index, though, was still higher than many analysts expected, meaning that it wasn’t weak enough to stave off an earlier interest rate increase, some analysts said.
Now investors are awaiting U.S. payroll-data this Friday.
This will be a much more important indicator on the Fed’s future direction, said Matthew Turner, a precious metals analyst at Macquarie. But even poor figures on Friday may not be enough to reassure gold investors. A weak number could be seen as relating to a specific situation in the labor market rather than a sign of more general weakness, he said.
Any economic U.S. data could be interpreted in various ways, so investors are unlikely to see clear-cut signals on near-term rate decisions, Mr. Turner said.
Many analysts see a long-term bearish trend for the gold market.
“It seems that the short-term speculative drivers are exhausted,” said Carsten Menke, an analyst at Julius Baer.
An ANZ report said that speculators have cut their net long positions for the first time in six weeks on electronically traded gold. Now, analysts ask whether the recent fall in gold prices will trigger even more speculative selling.
Still, not everybody is giving up on gold.
The World Gold Council argues short-term volatility may disguises longer term trends. Some analysts point to demand from central banks in China, India and Russia as being still solid and expect consumer demand in India to pick up.
“The uniquely diverse nature of the gold market, with demand spread across many countries and different sectors, means there will be divergent reactions to price movements from different parts of the market,” a spokeswoman from the council said.
