Lower sentiment will likely keep pressure on gold prices in the short and medium term, according to the S&P Global Platts Gold Sentiment Survey released Friday.
Gold is down as much as $25 on the week to around $1,310/oz Friday, its lowest since September 1, unable to find much support from recent stock market uncertainty, disappointing US economic data and falling expectations of an interest rate rise.
Weak US retail sales and industrial production numbers for August have cut the chances of the Federal Reserve raising rates this year, with the probability of rate cut at next week's Fed meeting dropping to as low as 10%, according to CME Fed Fund Futures Friday.
The probability of a rate hike by December, which had previously been supportive of gold, has also fallen to below 50% for the first time in recent weeks.
"The market has priced in the absence of a [US] rate hike this month, but sentiment remains weak and investors will be looking at the language from officials as to clues of future [Fed] action," Natixis precious metals analyst Bernard Dahdah told Platts Friday.
Dahdah said further rate action was also unlikely from the Bank of Japan and the European Central Bank, following Thursday's decision by the Bank of England to keep rates unchanged, as was expected.
Commerzbank said in a note Friday: "We would normally have assumed that the recent weak US figures would have given the price a positive boost. After all, this increases risk aversion among investors on the one hand, while lowering expectations with respect to US interest rate hikes on the other."
Respondents to the Platts survey are suggesting prices could fall below $1,300/oz for the first time since before the Brexit referendum decision on June 23, with participants suggesting a range of $1,280-$1,320/oz next week.
Soft physical pickup and weaker investment demand could also see prices fall back to $1,250/oz in the medium term, according to participants surveyed.
Investment demand continues to slide in September, with the largest gold-backed exchange traded fund SPDR Gold Trust showing outflows of over 18 mt in the week to Thursday, according to company data.
In August, SPDR Gold Trust showed an outflow for only the second month this year, dropping around 15 mt. Its total net assets are down around 5% from three-year highs at the end of July to around 930 mt today.
Physical demand in Asia, by far the largest consumers of gold, continues to be mixed, meanwhile. Chinese demand has recovered to normal levels for this time of the year, with physical premiums of up to $3/oz heard.
Yet Indian demand remains stubbornly weak, even with discounts to the international price recovering to $10/oz this week, the lowest since May.
Local dealers are hoping the run-up to the festival and wedding season, as well as a good monsoon, can lift the market in the fourth quarter, typically the strongest period for Indian demand.
Dealers have suggested a drop below $1,300/oz could spur a flurry of demand, while the more optimistic eye a return to parity in local discounts as early as next week.
