By Rachel Koning Beals
Gold prices dipped Tuesday as the dollar stretched to a three-week high while financial markets assessed stronger chances for rising U.S. interest rates after recent Federal Reserve comments.
Traders are already eyeing the monthly U.S. jobs report due at the end of the week as the next major catalyst in the effort to solidify their expectations for rates—it is the scope and speed of monetary policy that is driving the deepest debate. Policy-makers have said rate decisions are largely dependent on the economic data sprinkling in.
“We believe there is over an 80% chance that the Fed will increase the interest rate one more time this year,” said Naeem Aslam, chief market analyst with ThinkMarkets. “If the U.S. [nonfarm payrolls] number shows a solid reading on Friday, we are expecting September to become more volatile and as of now, there is roughly a 35% chance that the Fed could increase the rate.”
Economists surveyed by MarketWatch forecast the U.S. added a solid 160,000 new jobs in August.
December gold GCZ6, -0.54% fell $4.30, or 0.3%, to $1,322.80 an ounce. After Fed members stoked speculation for a rate increase sooner rather than later, gold futures fell about 1.5% last week, the biggest weekly decline since July 15, FactSet data showed.
The U.S. ICE Dollar Index DXY, +0.46% rose 0.3% Tuesday.
“I don’t think we know at the time we start [raising interest rates] whether it is one and done or several. It depends entirely on what happens in the economy,” Fed Vice Chairman Stanley Fischer said Tuesday in a Bloomberg interview.
The rate-setting Federal Open Market Committee next meets September 20-21. It does hold a meeting on Nov. 1-2, just ahead of the U.S. presidential election, and wraps up its 2016 schedule with another two-day huddle on Dec. 13-14.
The prospect for higher interest rates usually lifts the dollar, depressing the value of precious metals priced in the currency. And a rate increase tends to cut demand for assets that don’t provide a yield, including gold.
Meanwhile, Deutsche Bank analysts said in a recent note that gold should be trading around $1,700 an ounce.