Gold touched its lowest level since the UK voted to leave the European Union back in June as it just managed to keep its head above the US$1,300 mark on Wednesday.
The precious metal did recover somewhat in the afternoon session to actually post a small gain, although it remains under pressure from renewed confidence that the Federal Reserve will raise interest rates before 2016 is out.
The Fed has previously said that it would seriously consider upping rates should US data continue to point towards a recovering economy.
Payroll processor ADP yesterday estimated that non-farm private employment rose by more than analysts had expected in August.
“If the official US labour market data that are due to be published tomorrow turn out to be as good as the ADP’s figures that were published yesterday, the gold price is likely to come under further pressure,” said Commerzbank’s head of commodity research Eugen Weinberg.
This is largely because more positive economic data would likely add fuel to expectations that the Federal Reserve will hike interest rates in the coming months.
According to analysts, the chance of a September rate rise currently sits at 35%, although this could go up depending on tomorrow’s numbers.
Dovish comments from Fed officials have also piled the pressure on gold over the last seven days.
Stanley Fischer suggested that there may be multiple raises in the near future, after commenting to Bloomberg that he doesn’t expect a “one and done” approach to any hike.
A rate rise would have a negative impact on the price of gold as it would increase the opportunity cost of holding non-yielding bullion, while simultaneously boosting the dollar, which the yellow metal is priced in, making it more expensive to foreign currencies.
A hike would also suggest to markets that the global economy is in better shape, reducing the need for ‘safe-haven’ assets such as gold.
All eyes will now turn to tomorrow’s non-farm payrolls report for August, which could shape the Fed’s next interest rate decision.
Shortly after UK market close, gold was up US$5 to US$1,113, silver was up 15c to US$18.78, while platinum fell US$4 to trade at US$1,044.