Gold prices fell on Friday as a stronger US dollar and rising Treasury yields put renewed pressure on the precious metal. The decline leaves gold on course for a second consecutive weekly fall, while investors await key US employment data that could provide fresh clues about the Federal Reserve’s next interest-rate decision.
At 8:05am Bangladesh time on Friday, the spot gold price was down 0.6 per cent at $4,154.78 an ounce. Gold has fallen by more than 3 per cent so far this week. US gold futures also declined, slipping 0.4 per cent to $4,184 an ounce.
The strength of the US dollar has been an important factor behind the recent weakness in gold. Because gold is priced in dollars, a stronger US currency makes the metal more expensive for buyers using other currencies. That can weigh on demand and encourage investors to reassess their positions in the precious-metal market.
Higher US Treasury yields are adding to the pressure. On Thursday, yields on 10-year and 30-year US Treasury bonds reached their highest levels since 2002. Rising bond yields can reduce the appeal of gold because the metal does not generate interest income. When returns on interest-bearing assets increase, investors may have greater incentive to allocate funds towards those assets.
Market attention is now firmly focused on the US employment report. In particular, investors are watching non-farm payroll figures for indications about the strength of the American labour market and what they could mean for the Federal Reserve’s monetary policy.
Kyle Rodda, a senior financial market analyst at Capital.com, said market participants were monitoring expectations for US interest rates as well as geopolitical developments in the Middle East. He described the non-farm payroll figures as particularly significant for interest-rate expectations.
Rodda said stronger-than-expected employment figures could increase expectations of another US rate rise, potentially creating additional pressure on gold prices. The report on September non-farm employment was scheduled to be released at 6:30pm Bangladesh time.
Recent comments from Federal Reserve policymakers have also contributed to uncertainty over the path of interest rates. Two Fed policymakers this week indicated that they favoured waiting for additional economic data before supporting another rate increase.
Economic data released on Wednesday showed that US inflation rose less than expected in August. Price pressures in the previous month were also weaker than initially indicated in earlier data. As a result, market expectations regarding a possible rate increase this month have shifted considerably.
Market participants are currently putting the probability of a rate increase this month at around 25 per cent, compared with roughly 70 per cent at the beginning of the week. Expectations for a rate increase in December, however, remain considerably higher, with traders putting the probability at around 79 per cent.
The relationship between interest rates and gold is closely watched by investors. Gold does not pay interest or dividends, so higher borrowing costs and stronger returns on interest-bearing assets can make it relatively less attractive. At the same time, expectations of lower rates can support demand for the metal by reducing the opportunity cost of holding it.
Geopolitical developments in the Middle East are also influencing market sentiment. Sources said Iran was preparing to respond more forcefully if the United States launched another major military attack. Tehran is also continuing efforts to seek a diplomatic solution, although some Iranian officials privately believe the chances of such an initiative succeeding are limited.
Other precious metals also recorded mixed movements on Friday. Silver fell 0.5 per cent to $60.53 an ounce, while platinum declined 0.4 per cent to $1,716.93. Palladium, meanwhile, rose 0.1 per cent to $1,172.80 an ounce.
Despite palladium’s modest daily gain, silver, platinum and palladium are all on course to finish the week lower. The broader precious-metals market is therefore being shaped by several competing forces, including movements in the US dollar, Treasury yields, expectations for Federal Reserve policy and developments in the Middle East.
For gold traders, the immediate focus remains on the US employment figures. A stronger-than-expected report could reinforce expectations of tighter monetary policy and place further pressure on the metal, while weaker data could alter market expectations about future interest rates.
