Gold price falls 1% as dollar climbs ahead of ECB and US payrolls

Johannesburg-S.A. (Dec 2)  Gold fell more than 1% on Wednesday, snapping two days of gains, as the dollar rose against the euro ahead of expected further stimulus from the European Central Bank (ECB) on Thursday and US payrolls data later in the week.

The metal hit near six-year lows last week, pressured by expectations that the US Federal Reserve will raise interest rates for the first time in nearly a decade this month, even as the ECB eases policy further.

The Fed has tied the timing of its rate hiking cycle to the strength of US data, making this week’s payrolls report particularly important. Rising rates would lift the opportunity cost of holding non-yielding gold, while boosting the dollar.

Spot gold was down 1.3% at $1,055.90 an ounce at 3pm GMT. Last week it slid to its lowest since February 2010 at $1,052.46. US gold futures for February delivery were down $8.90/oz at $1,054.60.

"We’re seeing the end of the second act of a three-part drama for gold," Macquarie analyst Matthew Turner said.

"The first part was post-financial crisis, when the Fed was easing and gold prices were going up. The second part has been since 2013, when the Fed has been moving towards its first tightening. Now we have to see what happens in part three. There doesn’t seem to be any reason to see a big gold bounce until the Fed actually raises rates."

The euro fell on Wednesday to hold just above a seven-and-a-half-month low against the dollar as long-term investors raised their bets against the single currency before Thursday’s ECB meeting, where markets are expecting fresh stimulus measures.

The euro extended losses after data showed eurozone inflation was unchanged in November against expectations of a slight increase, maintaining pressure on the ECB to ease monetary policy further.

Gold also fell after data showed US private employers added a greater than expected 217,000 jobs in November, signalling job growth is likely strong enough to support a rate hike when the Fed meets later this month.

"Essentially the ECB and Friday’s non-farm payrolls look quite negative for precious metals, given the likelihood of further strengthening of the dollar on the back of potential quantitative easing in the eurozone, and further US jobs growth," Mitsubishi analyst Jonathan Butler said.

"But as always, precious could jump higher if those expectations are disappointed."

Silver was down 1.1% at $14.02/oz, while platinum was down 0.7% at $828.43/oz and palladium was down 1.3% at $531/oz.