Gold for December delivery settled down 0.6% at $1,341.60 a troy ounce on the Comex division of the New York Mercantile Exchange, reversing course after trading as high as $1,352.50 earlier in the session. The drop marked the second consecutive day of losses for the precious metal.
The ECB’s decision to keep rates unchanged sparked selling in government bonds and a rise in yields, which put pressure on gold prices, said Tai Wong, head of base and precious metals trading at BMO Capital Markets.
ECB President Mario Draghi “ kept his weapon in the holster today,” said Mr. Wong. “The higher interest rates created a little bit of a correction in gold.”
Higher interest rates tend to weigh on gold, which pays its holders nothing and struggles to compete with yield-bearing assets when borrowing costs rise.
The WSJ Dollar Index, which measures the dollar against a basket of other currencies, was recently up 0.3% at 86.13. A stronger dollar is typically bearish for gold, because it makes the dollar-denominated commodity more expensive for investors who hold other currencies.
The strength of the dollar has been a driving factor for the gold price for the past few weeks, acting as a signal for expectations on the timing of a future U.S. rate increase, said Carsten Menke, a commodities research analyst at Julius Baer.
“I think this is what is going to stay with us for at least until the end of the year,” as the Fed weighs the timing of a rate increase, he said.
Gold prices reverse course as Dollar gains
09 September 2016
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Gold prices fell on Thursday after the U.S. dollar strengthened and the European Central Bank left interest rates unchanged.
