Gold hovered close to its lowest in nearly six years on Thursday, as the dollar held at multi-month highs and U.S. economic data reinforced market expectations of an interest rate hike this year.
Data on Wednesday showed that U.S. manufacturing output rose well above economists’ expectations in October, while business spending plans surged. New applications for unemployment benefits dropped last week.
Other data showed only a small increase in U.S. consumer spending in October, but did little to alter views that the economy was strong enough for the Federal Reserve to raise rates at its next policy meeting in December.
Spot gold was little changed at $1,071.96 an ounce by 0245 GMT, after dropping 0.4 percent on Wednesday. The metal dipped to $1,064.95 last week, the lowest since February 2010.
The dollar index, a measure of strength against a basket of major currencies, held near 100.17, an eight-month high reached in the previous session, hurting gold. “We are keeping an eye on the dollar as a possible catalyst (for gold),” ScotiaMocatta analysts said in a note.
“The dollar index is within reach of the multi-year high of 100.39. A break of this level would put downside pressure on gold with a break of $1,066 yielding initial $1,045, which is the 2010 low,” they said.
The 100.39 level, last reached in March this year, would be the dollar index’s highest since April 2003.
A stronger greenback makes dollar-denominated gold expensive for holders of other currencies, while higher rates could dent the appeal of non-yielding bullion. Gold had seen some safe-haven bids earlier in the week after Turkey downed a Russian fighter jet, stoking tensions between the two countries, but have faded since as investors fretted over the U.S. rate hike.
Any worsening of tensions could see investors seeking safety in bullion. Russia sent an advanced missile system to Syria on Wednesday to protect its jets operating there and pledged its air force would keep flying missions near Turkish air space. Liquidity is likely to be thin on Thursday as the U.S. markets are shut for the Thanksgiving holiday.
In the physical markets, buying interest picked up as gold prices stayed near multi-year lows. Premiums on the Shanghai Gold Exchange, a proxy for demand in top consumer China, were trading at a healthy $5-$6 an ounce on Thursday, versus $3-$4 in the beginning of the month.