Gold Set for First Quarterly Loss This Year on Dollar Strength
Gold fell to a nine-month low on Tuesday as the dollar climbed, with the metal set to post its sharpest monthly loss since June 2013 and the first quarterly loss this year on expectations of further gains in the U.S. currency.
Gold is down about 5.5 percent for the month and heading for a quarterly drop of 9 percent.
Spot gold touched its lowest since Jan. 1 at $1,204.40 an ounce and was down 0.7 percent at $1,207.50 an ounce by 1211 GMT, while U.S. gold futures lost $10.90 to $1,207.90 an ounce.
"Gold bulls' worst nightmares involve a rampant dollar and surging real interest rates, and this macro-trend is currently being fueled by the expectation that the ECB policy meeting on Thursday and Friday's U.S. employment data will highlight the gulf in performance between the euro zone and U.S. economies," Macquarie analyst Matthew Turner said.
The dollar climbed to a four-year peak against a basket of major currencies, helped by strong U.S. economic data on Monday, while European stocks rose after figures showed euro zone annual inflation at 0.3 percent in September.
The U.S. currency has posted a record-breaking 11 weeks of successive gains on expectations that the Federal Reserve will raise interest rates well ahead of its counterparts in Japan and the euro zone.
The U.S. central bank indicated this month that it could raise borrowing costs faster than expected when it starts moving.
The next market focus will be the release of September non-farm payrolls data on Friday.
The strength in the dollar and the U.S. economy have been driving gold's declines over the past few weeks. A stronger U.S. currency makes dollar-denominated precious metals more expensive for holders of other currencies. Investors tend to withdraw from non-interest-bearing assets to seek higher yields elsewhere when the dollar gains.
"The pressure is definitely on for gold to end the year in the red," said Howie Lee, investment analyst at Phillip Futures.
"We see little in the way to stop gold's downward slide, given that the Fed has made clear its intention to hike (rates) sooner (rather) than later and the Ukraine tensions have reached a fragile ceasefire."
Investors were also watching political unrest in Hong Kong as any worsening of tensions could lead to some investment demand for gold.
Tens of thousands of pro-democracy protesters blocked Hong Kong streets on Tuesday, maintaining pressure on China as it faces one of its biggest political challenges since the Tiananmen Square crackdown 25 years ago.
The Hong Kong protests, however, could hit retail sales in the region, a hot spot for tourists from mainland China, especially during the one-week National Day holiday that begins on Wednesday, bullion dealers said.
Lower gold prices dragged the rest of the precious metals down, with silver hitting its lowest since March 2010 at $17.07 an ounce and headed for its biggest quarterly loss since mid-2013. Platinum fell 0.1 percent to $1,299.50 an ounce and was set for a 12 percent quarterly drop. Palladium fell 1.8 percent to $771.85 an ounce, having touched a five-month low in earlier trade and was also poised for a monthly and quarterly loss.