Gold is expected to remain under pressure next week, respondents to the S&P Global Platts Gold Sentiment Survey said Friday, on the increasing possibility of a March lift in US interest rates, sooner than previously expected.
Having hit 3 1/2-month highs at the beginning of the week above $1,260/oz, spot gold was down around $10 on the day to a two-week low of $1,225/oz at 1500 GMT Friday, and is set for its first weekly decline in five weeks.
Gold has been under pressure from the increasing likeliness of a lift in US interest rates at this month's Federal Reserve meeting, due March 15, which has picked up sharply following comments from Federal Reserve policymakers that point to an early interest rate hike.
Comments earlier in the week from Fed vice chair William Dudley that rates would increase in the "relatively near future," with no need to wait for tax reform details before tightening monetary policy, has helped lift expectations of a rate rise to over 80% Friday, according to CME Fed Fund futures, up from below 50% at the start of the week.
The rise in expectations lifted the US Dollar Index to over 102.20 Thursday, a two-month high, but it was down around 0.30% on the day to 101.85 at 1500 GMT Friday.
As well as a strong dollar, which is typically negative for all dollar-denominated commodities, higher interest rates raise the opportunity cost of holding gold as a non-yielding asset.
As a result, respondents to the Platts survey expect gold to remain under pressure next week and in the medium term. But, with a March lift now likely priced in, it is expected to stay within its current range of $1,210-$1,250/oz.
A speech from Fed Chair Janet Yellen, due late Friday, is expected to provide more direction, although markets are now largely expecting it provide more ammo, not less, for a rate rise.
"A US Fed rate hike in March is now almost entirely priced in," Commerzbank said in a note Friday. "We are confident that the current correction will be only short-lived and that gold will resume its upswing on the back of low real interest rates and numerous risks."
ING's Hamza Khan agreed that political risk could provide tailwinds in the weeks ahead.
"Increased speculative interest in precious metals suggests investors are looking for a safe haven, and this is no surprise with a number of European elections set to take place over the next few months, which could potentially see significant policy change in certain countries," Khan said in a note Friday.
Net long gold positions on US commodity exchange COMEX jumped 23% to 78,042 contracts in the week ended February 21, Commodity Futures Trading Commission data showed this week.
The bullish money manager positions have increased six of the last seven weeks, and takes total net length to its highest since the start of December.
At the same time, a much-anticipated address by President Donald Trump to Congress on Tuesday appeared to offer few policy details, other than a repeat of a $1 trillion infrastructure spending pledge, illustrating growing uncertainty over the new administration's economic plans.
Elsewhere, physical demand has been reported modestly stable. The differential to the international spot price paid in India has been largely flat this week, with small discounts in some locations, while Chinese premiums remain unchanged at around $10/oz.
Dubai was reported at a 50 cents/oz discount, Turkey at a $1/oz premium, both also unchanged.
