By COMFORT OGBONNA
Gold prices slipped on Tuesday as investors weighed renewed tensions in the Middle East and prepared for a series of important U.S. labor-market reports that could influence expectations for interest rates.
Spot gold fell 0.4% to $4,428.54 an ounce by 4:32 a.m. GMT, after touching its lowest level since Aug. 19 during the previous session.
U.S. gold futures also edged lower, declining 0.1% to $4,477.20 an ounce.
The precious metal has come under pressure as investors reassess the outlook for U.S. monetary policy. Several key economic reports due this week are expected to provide clues about the strength of the labor market and the direction of interest rates.
Among the closely watched releases are U.S. job openings, the ADP private-sector employment report and the monthly nonfarm payrolls report. Investors will examine the figures for signs of whether hiring remains strong enough to keep inflationary pressures elevated or whether a weakening labor market could encourage a more accommodative monetary policy.
The reports could be particularly important for gold because the metal does not pay interest. When interest rates rise, investments such as government bonds can become more attractive relative to gold, increasing the pressure on bullion prices.
Gold’s recent decline follows a sharp reversal last week. Spot gold reached its highest level in more than three months before falling about 3% on Friday after Federal Reserve Chair Kevin Warsh indicated that policymakers would need greater confidence that inflation is moving toward the central bank’s 2% target.
The comments were interpreted by markets as a sign that monetary policy could remain tighter than previously expected.
Higher interest-rate expectations have weighed on gold, while rising oil prices have added another complication for investors.
The renewed tensions surrounding the Strait of Hormuz have pushed oil prices higher, raising concerns that increased energy costs could contribute to inflation.
“One hike in isolation should not be a game changer for gold. Two or three might be,” said IG market analyst Tony Sycamore.
Markets are currently pricing in a 66% probability of a U.S. interest-rate increase in September and an 89% probability of another increase in December, according to the CME FedWatch Tool.
Those expectations represent a significant factor for gold investors because sustained higher interest rates can increase the opportunity cost of holding bullion.
Gold is traditionally viewed as a store of value and a potential hedge against inflation and economic uncertainty. However, the metal tends to face pressure when interest rates and bond yields rise because investors can obtain higher returns from interest-bearing assets.
The Federal Reserve’s approach to inflation will therefore remain a major driver of gold prices in the weeks ahead.
President Donald Trump said Monday that he has a high level of respect for Warsh and that the Fed chair would do what he believes is necessary regarding interest rates.
At the same time, tensions in the Middle East are providing some support for gold by increasing demand for assets that investors traditionally view as havens during periods of geopolitical uncertainty.
Trump threatened further strikes against Iran on Monday after the two sides exchanged direct attacks for the first time in about a month. The latest escalation has increased uncertainty surrounding a conflict that had recently shifted toward an economic confrontation.
The possibility of further military action has also contributed to higher oil prices, with crude rising for a second consecutive session.
For gold, the competing forces of geopolitical risk and higher interest-rate expectations have created a more uncertain trading environment.
Investors could turn toward bullion if the Middle East conflict escalates or if economic data points to a weaker U.S. economy. Conversely, stronger-than-expected employment figures and continued concerns over inflation could reinforce expectations for higher interest rates and weigh further on gold.
The U.S. labor-market data will therefore be closely watched for signs of which force is likely to dominate.
Other precious metals were mixed on Tuesday. Spot silver fell 0.2% to $66.42 an ounce, while platinum gained 0.4% to $1,797.71. Palladium was little changed at $1,355.08.
The immediate direction of precious metals is likely to depend on a combination of U.S. economic data, Federal Reserve policy expectations, movements in the dollar and developments in the Middle East.
With gold still trading well above $4,000 an ounce, investors remain focused on whether the metal can regain its recent momentum or face further pressure if expectations for higher interest rates continue to strengthen.
Original article
Comments