Gold set for worst month since September on Fed rate-hike prospects

Gold prices fell on Monday and were set for the biggest monthly drop since last September, as markets anticipated higher rate hikes by the U.S. Federal Reserve on the back of key economic data, while a stronger dollar put further pressure on bullion.

Spot gold was down 0.2% at $1,787.70 per ounce, as of 0658 GMT, taking its monthly drop to more than 2%.

U.S. gold futures were up 0.1% at $1,789.20.

“It’s just that continuation of the real rates moving higher again and that’s producing a more negative backdrop for gold, and I think the focus this week is going to be on non-farm payroll on Friday,” said Stephen Innes, managing partner at SPI Asset Management.

“Markets (are) only expecting 100,000-150,000 new jobs. So, if we get something higher, that will further enhance the possibility of a 50-basis-point hike in March.”

The U.S. Federal Reserve plans to raise interest rates in March on the assumption that the economy will largely steer clear of a fallout from the Omicron coronavirus variant and keep growing at a healthy clip. 

Although gold is considered a hedge against inflation, interest rate hikes would raise the opportunity cost of holding non-yielding bullion.

The dollar index hovered close to an 18-month high scaled last Friday, as traders eyed upcoming Australian, UK and European central bank meetings. A firmer greenback makes bullion more expensive for holders of other currencies.

Innes said the possibility of a rate hike from the Bank of England could slow down the U.S. dollar from appreciating further, which may put a floor under the prices of safe-haven gold.

Spot gold may test a resistance at $1,803 per ounce, according to Reuters’ technical analyst Wang Tao.

Spot silver shed 0.3% to $22.36 an ounce, while platinum rose 0.5% to $1,012.99.

Palladium was flat at $2,377.42, but the auto-catalyst metal was set for a monthly gain of 25%, its best since February 2008.