Gold rally fizzles out as dollar retains upper hand

NEW YORK (Oct 5) Gold fell 1% on Wednesday as the dollar regained traction and made bullion less appealing for other currency holders, while markets looked ahead to U.S. jobs numbers for clarity on the Federal Reserve's rate hike path.

Spot gold XAU= was down 0.7% at $1,714.08 per ounce by 0907 GMT, after hitting a three-week peak at $1,729.39 on Tuesday. U.S. gold futures GCv1 slipped 0.4% to $1,723.60.

The dollar index =USD jumped 0.5% against its rivals, after shedding 1.3% overnight to mark its biggest drop since March 2020. Benchmark U.S. 10-year Treasury yields US10YT=RR also rose. USD/US/

"It's been a big start to the week in which gold has rallied very strongly on the back on weaker U.S. data, and then softer yields and the dollar," said Craig Erlam, senior market analyst at OANDA. "We're probably seeing some profit-taking on the back of that."
"There's plenty more to come, including the services PMI today and U.S. jobs report on Friday that should ensure (gold) remains highly volatile."

The ADP National Employment report is due at 1215 GMT on Wednesday, followed by the U.S. Labor Department's closely watched nonfarm payrolls (NFP) data on Friday.

"While gold investors will no doubt toast the recent upward move, it is driven more on rhetoric that the Fed may be less hawkish," Kinesis Money analyst Rupert Rowling wrote in a note.

"For the move to be sustained it will take a smaller hike by the Fed to ensure the gains are held onto."

Although gold is seen a hedge against inflation, rate hikes tend to dull the appeal of bullion, which yields no interest.

Spot silver XAG= dropped 2.2% to $20.65 per ounce, platinum XPT= fell 0.9% to $921.74 and palladium XPD= dipped 0.7% to $2,300.66.
Reuters