Gold drifted lower on Friday and was headed for the seventh weekly drop in eight weeks as investors positioned for a looming U.S. rate hike. A strong U.S. nonfarm payrolls report last week cemented expectations of a rate hike at the Federal Reserve’s policy meeting on Dec. 15-16.
The first hike in nearly a decade is expected to dent demand for gold, a non-interest paying asset. Spot gold fell 0.4 percent to $1,067.20 an ounce by 0331 GMT, after closing flat over the last two sessions. For the week, bullion is down nearly 2 percent.
“The path of the euro-dollar may be the most visible influence on gold, at least until the Fed meeting,” said HSBC analyst James Steel. “If the Fed raises rates, gold may be in for a knee-jerk reaction lower,” said Steel, adding that the metal will be range bound until next week’s meeting.
A robust dollar was limiting interest in gold. The greenback rose for a second session on Friday, extending a rebound from a one-month low on expectations of a rate hike. A higher dollar makes greenback-denominated gold more expensive for holders of other currencies.
Weakness in oil was also hurting bullion. A slide in oil could trigger fears of deflation, a bearish factor for gold, which is often used as a hedge against oil-led inflation. U.S. crude prices remained near 2009 lows in early Asian trading on Friday as oil output in the Middle East continued to rise despite an existing global glut.
The outlook for gold looked bearish Short positions in COMEX gold futures and options are at record highs, while assets in SPDR Gold Trust, the top bullion exchange traded fund, are at their lowest since Sept. 2008. Investors have boosted bets that the gold price will soon drop to $1,000 an ounce, options data show.
Gold, on track for a third straight annual decline, has lost 9.8 percent of its value this year. The technical picture for gold looks neutral in the $1,064-$1,084 range, but a break below $1,064 could take the metal to a near-six-year low of $1,045.85, according to Reuters technical analyst Wang Tao.
Among other precious metals, silver and platinum were also headed for a seventh weekly loss in eight weeks, with declines of more than 3 percent.