Gold price edges lower as rates rise looms large

London (Sept 7)  The gold price is still rooted in a very narrow range and trading volumes are limited ahead of the Monday markets holiday in the US, but the metal is still edging lower as a looming interest rates rise comes into sharper focus.

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After a "thin" trading session in Asia overnight, gold dipped as low as $1,118 an ounce, reports. It settled at $1,121, marginally lower than its close last week as it continues to retreat gradually from a high of $1,168 reached in late August.

Since then, the Daily Telegraph says, despite wild stock market gyrations, speculation of a sharp slowdown in Chinese growth and increasing concern about the global economic recovery, gold has bucked its apparent "safe haven" status and actually "slumped" 3.5 per cent.

The apparent cause is that the "US Federal Reserve is still on course to increase the key central bank borrowing rate before the end of the year", the paper says. A US jobs report on Friday showed that unemployment in the world's largest economy is at an eight-year low, adding weight to the view that rates will rise soon. This "will dull the precious metal's appeal, as it offers no interest, or income, to investors".

Earlier last week "the European Central Bank lowered its expectations for inflation and growth during the next three years", further hitting a metal that is also seen as a "store of value which protects against the ravages of high inflation".

All of which suggests gold may yet fall further. This view is supported by weak recent demand for the metal, especially in China, the second largest market for gold in the world. The Financial Times says demand from the world's second largest economy may yet fall further, pointing to "a sense of panic among retail investors" that "does not bode well".