Gold edged up today but was on track to post its biggest weekly drop in five as strong US economic data backed the case for a near-term increase in interest rates.
A looming US rate hike has dimmed the appeal of non-interest bearing assets as gold, which may explain the fall in the metal from a recent seven-week high even as global equities tumbled on fears over a slowing Chinese economy.
The upward revision in US economic growth in the second quarter to 3.7 per cent from the initial estimate of 2.3 per cent spurred market expectations that the Federal Reserve could still raise rates this year despite the market turmoil.
Spot gold was up 0.4 per cent at $1,129.80 an ounce by 0703 GMT, but down 2.6 per cent for the week.
The metal touched a one-week low of $1,117.35 on Wednesday and has lost more than three per cent since hitting a seven-week top on August 21.
Robust second-quarter GDP, along with recent strong housing and manufacturing data, will likely prod the Fed to raise interest rates next month, said INTL FCStone Analyst Edward Meir.
“For all the talk of market turmoil, it is important to note that the Fed does not typically look at overseas developments to make its rate decision and we don’t think this time will be any different.” Meir said. “We are therefore in the minority camp calling for a 25 basis point rate increase next month, with the odds of a hike improving even more should equity markets recover a good portion of their losses by then. This should be a net negative for gold, yet another reason for us to view the complex more bearishly short-term.”
US gold for December delivery edged up 0.6 per cent to $1,129.40 an ounce.
A fall in gold prices from seven-week highs failed to spur physical demand in Asia, with premiums in India slipping, and those in China still hooked on volatile equities.
“There’s not much interest on the physical side. The Chinese are still concentrating on the stock market rather than the gold market,” said Ronald Leung, chief dealer at Lee Cheong Gold Dealers Ltd in Hong Kong.
Holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, stood at 21.95 million ounces on Thursday, the highest in five weeks.
Spot silver was steady at $14.48 an ounce, having fallen to a six-year trough of $13.93 on Wednesday. Silver has dropped more than five per cent this week, its steepest such decline since February.
Palladium climbed 2.5 per cent to $573.58 an ounce, extending Thursday’s rebound from five-year lows. Platinum was flat at $1,001.