Gold price slips on US rate doubts

London (Sept 11)  Gold prices were lower on the London spot market on Friday, with continued nervousness on show over future US interest rate strategy.

Spot gold was down 0.3 per cent at $US1,107.49 a troy ounce in morning European trade, moving within a tight $US7 range and trading not far above its two-week lows.

According to Fed Funds Futures, contracts which estimate the likelihood of Federal Reserve rate rises, the likely timing of a rate increase has shifted from September to later in the year.

"Chances are that [rates] will remain on hold for another month," says Jonathan Butler, a precious metals strategist at Mitsubishi. "But the market is in 'wait-and-see' mode."

Investors will likely remain on edge until the monetary policy meeting next week has passed, as they are wary of holding the precious metal with the risks of earlier rate rises. It would be the first time that the Fed has raised rates in nearly a decade and gold finds it easier to compete with interest-yielding assets, like Treasurys, when rates are pinned near zero.

Additionally, a firmer dollar was chipping away at demand for the metal. The greenback received a boost from the continuing strength of US jobless claims, which recorded a week-on-week fall on Thursday.

Gold is a dollar-denominated commodity. It suffers when the currency strengthens, becoming more expensive for those holding other currencies to buy.

The metal is facing its third consecutive weekly decline. Going forward, however, some analysts believe that prices will rise amid continued global economic uncertainty.

"Given the weaker dollar and the potential for further contagion from China, especially in emerging markets, we wouldn't be surprised to see gold work higher," William Adams, head of research at Fastmarkets, said in a note.

Among the other precious metals, spot silver was down 0.3 per cent at $US14.640 an ounce, spot platinum was up 0.4 per cent at $US979.41 an ounce and spot palladium was down 0.7 per cent at $US583.26 an ounce.

Source: Business-Spectator