Gold set for worst month since September on Fed rate hike outlook

  • Dollar nears 18-month high
  • Spot gold could test resistance at $1,803/oz – technical data
  • Palladium expected to post its best monthly gain since February 2008

Jan 31 (Reuters) – Gold prices fell on Monday and were expected to see their biggest monthly decline since last September as markets priced in higher rate hikes from the U.S. Federal Reserve on economic data keys, while a stronger dollar put additional pressure on bullion.

Spot gold was down 0.3% at $1,786.26 an ounce by 0428 GMT, taking its monthly decline to more than 2%.

US gold futures were flat at $1,786.50.

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“It’s just that the continued rise in real rates is producing a more negative backdrop for gold, and I think the focus this week will be on nonfarm payrolls on Friday,” said Stephen Innes, Managing Partner at SPI. Asset Management.

“The markets (expect) only 100,000 to 150,000 new jobs. So if we get anything higher, it will further increase the possibility of a 50 basis point hike in March.”

The US Federal Reserve plans to raise interest rates in March on the assumption that the economy will largely avoid fallout from the Omicron variant of the coronavirus and continue to grow at a healthy pace. Read more

Although gold is considered a hedge against inflation, increases in interest rates would increase the opportunity cost of holding non-performing bullion.

The dollar index hovered near an 18-month high hit last Friday as traders eyed upcoming meetings of the Australian, British and European central banks. A stronger greenback makes bullion more expensive for holders of other currencies.

Innes said the possibility of a rate hike by the Bank of England could slow the appreciation of the U.S. dollar, which could put a floor under safe-haven gold prices.

Spot gold could test resistance at $1,803 an ounce, according to Reuters technical analyst Wang Tao.

Spot silver fell 0.8% to $22.24 an ounce, while platinum was flat at $1,007.99.

Palladium fell 0.4% to $2,367.25, but the autocatalyst metal is expected to see its best monthly gain since February 2008, up around 25%.

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Reporting by Asha Sistla in Bengaluru; Editing by Sherry Jacob-Phillips

Our standards: The Thomson Reuters Trust Principles.

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