Gold had a poor week as it saw its biggest decline in more than two months.
Ever since the release of the latest Fed meeting minutes last week, gold has had a bumpy ride as analysts and experts alike now believe a US interest rate rise could happen as soon as June.
An interest rate rise would be bad news for gold for several reasons.
Firstly, it increases the opportunity cost of holding non-yielding bullion, while it would also strengthen the greenback, making dollar-denominated gold more expensive for foreign currencies.
The dollar and gold tend to work in opposite directions, so a strengthening dollar would probably lead to weaker gold prices.
To compound this, US jobless data on Thursday revealed that fewer Americans are filing for unemployment benefits than previously thought.
The Fed said in its meeting minutes that should data continue to suggest that the US economy is on an upswing, a rate rise would be very likely.
Seemingly when it rains, it also pours for gold at the moment.
Not only were the minutes and an improving economy weighing down its price, this week also saw the re-emergence of some bearish analysts.
Citi Research warned earlier in the week that there is “nothing to prevent gold falling below US$1,000 an ounce” should the dollar continue to strengthen.
On Thursday, Dominic Schnider head of commodities and foreign exchange at UBS Group AG’s wealth management unit was also downbeat on gold’s prospects.
“Some people are going to get caught on the wrong side. Gold is going to roll over, we’re going to fall back to US$1,150 and so be ready for more weakness in the short term,” he said.
But there is some activity in the gold market especially at the junior end.
Xtract Resources (LON:XTR) this week for example sold its Manica gold development in Mozambique for US$17.5mln, less than a year after it bought it.
The explorer only received government approval for the acquisition back in March, but said the likely dilution in raising US$35mln to build a mine had prompted it to accept the offer from Nexus Capital/ MTI.
The sale represents a 40% increase on the US$12.5mln paid to previous owner Auroch last summer.
Jan Nelson, Xtract’s chief executive, said it had carried out a detailed strategic review on receipt of the proposal from MTI and Nexus and decided to focus on its assets in Chile and elsewhere.