Gold Set to Drop on Sustained US Dollar Strength

Gold prices are set to drop next week as the demand for the metal could weaken amid sustained US dollar strength.

As many as 10 of 21 analysts polled in a Kitco Gold Survey said they expected gold prices to trade lower next week, while seven predicted that prices will rise and four forecast prices to trade sideways.

Demand for dollar-denominated commodities such as gold typically weakens on a stronger greenback as it makes the metal more expensive for holders of other currencies, lowering its hedge appeal.

Sean Lusk, director of the commercial hedging division at Walsh Trading, told Kitco that gold could test the bottom of the current range next week.

Lusk said: "Near term, gold is getting a little toppy here. There's the [US] dollar strength, weakness in crude. Prices should revert back to the downside, although we've seen a little up tick in physical [demand]… We never really saw a follow-through push higher over $1,200. Part of that was waiting for today [and the jobs numbers]."

Joe Manimbo, senior market analyst at Western Union, in a note, said the markets should "prepare for more greenback appreciation" after the US job market "knocked it out of the park [in November] with a surge of 321,000 non-farm payrolls, the most since January 2012."

Nordea Research said in a note: "November [marked] the 50th consecutive month of positive US jobs creation, the longest such period since the Second World War. The US economy has now produced more than 200k jobs for 10 consecutive months. The last time that happened was in the mid-1990s."

Gold Ends Higher

US gold futures for delivery in February traded lower on 5 December, as the US dollar hit a five-year high against a basket of currencies post Friday's upbeat US employment report.

Futures finished 1.4% lower at $1,190.40 per ounce on Friday.

But prices gained 1.27% for the week as a whole.

Spot gold was last down 1% at $1,194 per ounce.