Gold slid to a two-month low on Wednesday after forecast-beating U.S. jobs data stoked speculation that the Federal Reserve would move ahead with plans to raise interest rates, briefly propelling the dollar index to its highest in three weeks.
The U.S. dollar fell from three-week highs against a basket of currencies on Wednesday after weak manufacturing data dented some optimism about U.S. economic growth ahead of a highly anticipated jobs report on Friday.
The dollar index, which measures the currency against a basket of six majors, rose as high as to 96.255 .DXY, its highest since Aug. 9, before falling back to 96.005, marginally down on the day.
As has been the case so far this week, traders continued to cast one eye back on some of the hawkishly construed comments from Federal Reserve officials at their Jackson Hole symposium late last week, while looking ahead with the other eye to Friday’s jobs report. Market participants will be watching to see if the data in fact could encourage policymakers to hike interest rates again for the first time since December.
The CME FedWatch probability gauge implies a 27% chance of a rate rise in September, up a bit from yesterday. The VIX volatility gauge is up very minimally on the day.
It’s the first time gold has dropped in August since 2009, with the metal generally climbing on jewelry demand ahead of the wedding and festival season in India, the largest consumer after China. Prices slid 3.4 percent this month after surging 25 percent in the first half of the year as economic concerns fueled demand for the metal as a haven.
The pullback follows comments by Fed officials that lifted the dollar and prompted traders to boost bets on higher rates, which make bullion less competitive against interest-bearing assets. Purchases through exchange-traded products have slowed since holdings touched a three-year high on Aug. 11. The assets are up 25 metric tons this month, compared with increases of 55 tons in July and 110 tons in June.
Reference: Bloomberg, Reuters, KITCO
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