Gold prices fell for the second straight day and hit a one-week low on Wednesday, pressured by earlier strength in the U.S. dollar and as investors assessed Federal Reserve Chair Janet Yellen's testimony before a congressional committee.
The dollar pared gains of up to 0.3 percent against a basket of six major currencies.
“Gold slipped a bit more today in the face of comments from the Federal Reserve and one data point that could point more strongly in the direction of a rate hike in December. Equities moved higher on oil price spike, but we feel they are probing new tops and the pullbacks we are seeing are “technical” in the broad sense of the word.” said KITCO analyst.
"We also have Friday's U.S. inflation reading, which is the bank's preferred measure of inflation and if that shows tick up towards the 2 percent target, it would give more confidence to markets that the Fed will move to raise rates in December," said Mitsubishi Corp analyst Jonathan Butler.
Commodity analysts with Barclays look for investor inflows into gold to continue. “Gold comprises half of all investment flows this year,” they say in a report on commodities as an asset class. “Uncertainty about the financial sector, sluggish global growth and rising political risks are likely to support continued flows into the sector.” The bank reports that investment flows into commodities overall have been the strongest ever so far this year, beating the 2009 record. Gold buying by exchange-traded products for the year to date hit an all-time high in both volume and value terms, the bank adds.
China’s gold demand was subdued in August, likely curbed by the price rise so far this year, says Commerzbank. Analysts cite data from the Hong Kong Census and Statistics Department Tuesday showing that China imported a net 50.5 tonnes of gold from Hong Kong last month. “Not only was this 45% down on the previous month and 15% less than last August, it was also the lowest import figure since January,” Commerzbank says. “It would appear that the higher gold prices have prompted Chinese buyers to exercise restraint. After all, the average gold price in August was at its highest level in nearly three years. China’s net gold imports in the first eight months of the year total 555 tonnes and are thus 15% up on the same period last year, which puts the weak August figure into context.”
BNP Paribas looks for further weakness in the U.S. dollar after the Federal Reserve’s decision to leave U.S. interest rates unchanged last month. Analysts say they favor a tactical short position in dollar/yen at 100.75 yen, targeting a move to 97 yen but with a protective stop at102. “Steady monetary policy is likely to reinforce market participants’ view that the Fed will continue to delay further policy tightening,” BNP Paribas says. “In the near term, U.S. real yields should remain low and short USD positioning has room to build….Even if the Fed ultimately does hike rates in December, we expect USD downside over the coming weeks.” Metals traders monitor U.S. dollar moves since base and precious metals alike often trade inversely to the U.S. currency
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