Gold Set for Biggest Weekly Drop Since July Before Jobs Report

  • Bullion falls 3% this week as investors cut ETP holdings
  • Traders boost bets thart Fed will raise rates next month

Gold headed for the biggest weekly drop since July as investors awaited U.S. jobs data for more indications on when the Federal Reserve will raise interest rates.

Bullion slumped to the lowest since September this week and investors cut holdings in gold-backed funds as Fed officials suggested that the central bank may raise borrowing costs at their December meeting. Traders have boosted the odds of a liftoff next month to 56 percent from 50 percent on Monday, Fed-fund futures data show.

Higher rates reduce gold’s appeal because it doesn’t give returns or pay interest like other assets such as stocks or bonds. Investors are scrutinizing data to see if the economy is strong enough to warrant a rate increase amid concerns a slowdown in China will spur U.S. policy makers to delay the move. The Labor Department will probably say on Friday that U.S. employers added more jobs last month, according to a Bloomberg survey.

"It really is about the nonfarm payrolls today," Matthew Turner, an analyst at Macquarie Group Ltd. in London, said by phone. "Gold has a negative correlation with U.S. interest rates. Short-term interest rates have been rising in expectations of the early Fed move."

Bullion for immediate delivery added 0.4 percent to $1,108.09 an ounce by 10:41 a.m. in London, according to Bloomberg generic pricing. That cut this week’s drop to 3 percent. Investors have cut holdings in exchange-traded products 1.5 percent this week to to the lowest since September, data compiled by Bloomberg show.

Two-year U.S. treasury yields have climbed to the highest since 2011, reflecting expectations that the Fed will soon raise rates for the first time since 2006.

"What gold has been tracking recently has been the U.S. two-year yield," Macquarie’s Turner said. "It’s all about that."

Economists expect the Labor Department to say that employers added 185,000 jobs last month compared with 142,000 in September.

“As long as Friday’s payrolls report suggests employment growth of around 170,000 to 180,000, it will lend further support to the probability of a December rate hike, which will be bearish for gold,” Vyanne Lai, an economist at National Australia Bank Ltd. in Melbourne, said by e-mail.

Silver for immediate delivery rose 0.4 percent to $15.0385 an ounce in London, set for a 3.3 percent weekly drop. Platinum added 0.3 percent and palladium gained 0.6 percent.

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