Gold price hits five-week low, more losses seen on US rate hike

London (Mar 9)  Gold sank to a five-week low on Thursday and analysts expected more losses as investors become more certain that US interest rates will rise later in the month.

Spot gold was down 0.3% at $1,204.26 an ounce by 11.00am GMT. Earlier in the session, it hit $1,202.70, the lowest since February 1.

US gold futures eased 0.4% to $1,204.60. A series of strong US economic data and comments by Federal Reserve officials have sent the odds of a rate hike this month soaring. Higher rates tend to put pressure on gold prices because they raise the opportunity cost of holding non-yielding bullion while boosting the dollar, in which it is priced.

Prospects for a hike increased on Wednesday when US private-sector job growth recorded its biggest increase in more than a year in February, suggesting the economy remained on solid ground. "You can see the price continuing to drop as more news comes out, confirming what the market already knows," said Bernard Dahdah, metals analyst at Natixis. "I wouldn’t be surprised to see gold drop below $1,200 in the next few days."

Investors are awaiting February’s non-farm payrolls data on Friday as a barometer of the US economy, after Federal Reserve chairwoman Janet Yellen said last week that the central bank was poised to lift rates, provided jobs and inflation data held up. Her comments were seen as cementing plans for an increase at the Fed’s March 14-15 meeting.

"If the [non-farm payroll] data does come in better than market expectations, it will drag gold prices further," said OCBC analyst Barnabas Gan. "But with fund futures fully pricing in the rate hike story, I’d presume gold will just be supported at the $1,200 handle into next week."

Interest rates futures implied traders saw an 86% chance of a rate hike next week on Wednesday, compared with 82% at Tuesday’s close, according to CME Group’s FedWatch programme.

In other precious metals, silver fell 0.6% to $17.13 an ounce after touching $17.10, the lowest since January 31. Platinum dipped 0.2% to $946.66 after hitting a low of $939, the weakest since January 5, while palladium slid 1.5% to $757.75.

Source: Reuters