Gold clings to gains, but outlook bearish ahead of US jobs

SINGAPORE: Gold clung to gains from a two-day rally on Wednesday, supported by short-covering following a dip in the dollar after soft US manufacturing data. The outlook for the metal, however, remains bearish due to a looming US rate hike, with all eyes now on the US non-farm payrolls data due later in the week.

A strong jobs report would further bolster the likelihood of a hike later this month, reducing the appeal of dollar-denominated gold.

Spot gold slipped slightly to $1,067.80 an ounceby 0704 GMT, after gaining about 1 percent in the past two sessions. “The fate of gold is still very much determined by US monetary policy,” said Mark To, head of research at Hong Kong’s Wing Fung Financial Group. “Prices will consolidate around current levels until the policy meet in mid-December.”

The expected US interest rate increase will drag gold prices to the $1,000 level, he added. Bullion fell to a near-six-year low last month and posted its biggest monthly drop in 2-1/2 years in November as investors believed higher rates could weaken demand for non-interest-paying bullion. The Federal Reserve is widely expected to raise US rates for the first time in nearly a decade at its next meeting on Dec. 15-16. ABN Amro on Tuesday maintained its negative outlook for gold prices in 2016, mainly on expectations the Fed would slowly raise rates into next year, and said prices could fall below $1,000 per ounce in the coming months.

Traders will be eyeing US payrolls data on Friday to gauge the strength of the economy and its impact on the Fed’s rate decision. Data on Tuesday showed US manufacturing contracted
in November for the first time in three years, though other data showed an increase in construction spending in October. Analysts said the manufacturing weakness will not deter the Fed from raising rates this month. The US dollar fell from an 8-1/2 month high on the weak data on Tuesday, but ticked up on Wednesday.

The dollar weakness likely required some bullion investors to unwind and cover their short positions in the precious metal, prompting the gains during the last two days. Hedge funds and money managers are holding a record net short position in COMEX gold contracts, data on Monday showed.

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