Gold Prices to Drop Further on Upbeat US Economic Data

Gold prices are set to drop further next week as improving economic data from the US, and hints from the American central bank about a likely interest rate hike next year, are expected to dent the precious metal's safe-haven status.

As many as 12 of 23 analysts polled in a Kitco Gold Survey said they expected gold prices to trade lower next week, while eight predicted that prices will rise and three forecast prices to trade sideways.

Ralph Preston, principal, Heritage West Financial, said: "From a momentum and technical point of view, the pass of least resistance is down."

BofA Merrill Lynch said in a note to clients: "[Gold's] push below 1280 says that our game plan to wait for a bounce to 1345/1385 before selling is likely misplaced. However, with the [US dollar] at increasing risk of a temporary pullback, we want to see more before acting.

"The next level to watch is Triangle support at 1269. Below here exposes 1258/1241. Bears need a break 1241 to confirm a resumption of the larger, long term downtrend for 1180 and below."

Nordea Bank said in a note: "In a much-anticipated speech in Jackson Hole the [US Federal Reserve] Chair [Janet] Yellen repeated the balanced discussion of the monetary policy outlook expressed in her congressional testimony in July. Yellen's comments made clear that she isn't ready to start raising rates."

"Going forward, all eyes will remain on inflation data and especially wage data as this well certainly set the stage for how fast the Fed will normalise policy. Until Yellen sees clear evidence of higher wage increases, she will likely remain content with normalising policy slowly.

"We continue to believe that the Fed is underestimating inflation risks. Thus we still expect the Fed to turn more hawkish later this year and that markets will start pricing in more rate increases from the Fed as the economy continues to strengthen and the geopolitical concerns fade," Nordea added.

Gold Ends Lower

US gold futures for delivery in December finished $4.80 lower at $1,280.20 an ounce on 22 August.

Prices are down some 2% for the week as a whole.

Spot gold inched up 0.2% to $1,280 an ounce on 22 August.