Gold slips as dollar firms on strong US data, rate hike talk

London (July 7)  Gold fell on Monday as the dollar firmed on speculation over an earlier-than-expected hike in U.S. interest rates following strong job data, which dented investment demand for the metal.

Gold has been under pressure since data on Thursday showed U.S. employment growth jumped in June and that the jobless rate closed in on a six-year low, evidence of brisk economic growth.

The data led investors to bring forward their views on timing of the first rate hike by the U.S. Federal Reserve to the middle of 2015, although most economists said that more data was needed.

An interest rate hike would encourage investors to withdraw money from non-interest-bearing assets such as gold.
"The good U.S. payrolls report has put the focus on interest rates expectations, and that's why gold and silver have been moving lower," ABN Amro analyst Georgette Boele said.

"If data continues to come in strong, it will be very interesting to see if the Fed's rhetoric changes, and that could have a dramatic impact on U.S. interest rates expectations for 2015."

Spot gold slipped 0.6 percent to $1,312.70 an ounce by 0951 GMT, while U.S. gold futures for August delivery were down 0.5 percent at $1,313.60 an ounce.

The dollar was up for a fifth straight day to trade near its highest in almost two weeks against a basket of currencies. It gained support from the steady climb in U.S. bond yields since last week's robust U.S. jobs report.
Returns from U.S. bonds are closely watched by the gold market, given that the metal pays no interest, as these are viewed as a key indicator of Fed action in coming months, analysts said.

Gold prices are expected to retest a support level at $1,311, with a good chance of breaking below this and falling to $1,297, Reuters technicals analyst Wang Tao said.

Source:  CNBC