Gold slips below $1,800 on Fed rate expectations

Gold prices slipped back below $1,800 an ounce last week as the US Federal Reserve signalled it could start increasing interest rates as soon as March. The release of Fed minutes showing members worrying about inflation sent gold to a three-week low before a rally on Friday in response to weaker than expected US job growth.

The afternoon fixing on Friday in London was $1,792.60 an ounce, compared with $1,805.85 a week earlier. Thai selling prices were quoted at 28,600 baht per baht-weight (15.2 grammes), down 150 baht from the previous week.

“With fewer jobs added in December, but with the unemployment rate in the US falling back toward a multi-year low, it was somehow a mixed report for gold,” UBS analyst Giovanni Staunovo said.

Nonfarm payrolls rose by 199,000 jobs last month amid worker shortages, lower than a forecast of 400,000, while unemployment plunged to 3.9%, the lowest in 40 years.

Average wages rose as employers sought to attract workers in a tight market partly resulting from the fast spread of Covid-19, potentially adding to inflationary pressures and strengthening the Fed’s resolve to tighten policy.

“The gold price reaction suggests the market is more focussed on inflation risks ahead of the Fed meeting (on Jan 25 and 26),” Standard Chartered analyst Suki Cooper said.

Gold is highly sensitive to rising US interest rates, which increase the opportunity cost of holding non-yielding bullion.

In the physical market, an uptick in retail appetite prompted dealers in India to charge premiums, although new Covid restrictions slowed activity, while upcoming Lunar New Year festivities brightened the outlook for sales in Singapore.

Local curbs on weddings due to rising cases of coronavirus could reduce gold demand in India in the short term, said a Mumbai-based bullion dealer.

Singapore dealers were charging premiums of $1.50 to $1.80 per ounce over global spot prices, amid healthy festiveseason buying, said Brian Lan of GoldSilver Central.