Gold stuck near four-week low on US rate hike view

The Fed last week firmly put a December rate rise in play, hurting earlier views that the increase could be pushed to next year

Gold steadied after a four-day decline on Tuesday but languished near a four-week low as investors dumped the metal on expectations the Federal Reserve would hike US rates this year.

The Fed last week firmly put a December rate rise in play, hurting earlier views that the increase in nearly a decade could be pushed to next year on global growth concerns.

Spot gold ticked up 0.1% to $1,134.60 an ounce by 0246 GMT, but close to a four-week low of $1,132.35 reached in the previous session. The metal slid for a fourth consecutive session on Monday.

"We remain negative on the overall precious group over the short-term ... The combination of a stronger dollar, soaring US equity markets, ETF liquidation, a jittery Fed, along with a worsening technical picture will all combine to keep the complex on the defensive for a little while longer," said INTL FCStone analyst Edward Meir.

 

As a non-interest-paying asset, gold demand could take a hit from higher rates, while a stronger greenback makes dollar-denominated gold more expensive for holders of other currencies.

US economic data on Monday was supportive of a rate hike this year. Manufacturing activity in October hit a 2-1/2-year low, but a rise in new orders offered hope the United States might have seen its worst.

Other data showed construction spending rose in September to the highest in 7-1/2 years, indicating the economy remained on firmer ground despite signs of consumer spending cooling.

Investor outflows from exchange traded funds have increased.

Holdings in SPDR Gold Trust, the top gold-backed exchange-traded fund, fell 0.43% to 689.28 tonnes on Monday, the lowest in three weeks. The fund hasn't seen any inflow since October 19.

Speculators have trimmed bullish bets on gold from an 8-1/2-month high, data last week showed.

Charts point to further price declines, according to analysts.

The next support for gold comes in at $1,121, ScotiaMocatta analysts said in a note.

While gold holds below $1,156, there is a risk of a deeper correction to October low near $1,105, they said.