Gold fell to a nine-month low on Tuesday as the dollar climbed, with the metal set to post its sharpest monthly loss since June 2013 and the first quarterly loss this year on expectations of further gains in the US currency. Cash prices touched their lowest since January 1 at $1,204.40 an ounce and although managing to recoup earlier losses, the metal is still down about 5.5 percent for the month and heading for a quarterly drop of 8 percent.
Spot gold was trading unchanged at $1,215.80 an ounce at 1429 GMT, erasing losses after lower-than-expected US data. US gold futures lost $2.40 to $1,216.20 an ounce. "The bottom line is that the dollar will continue to appreciate against the euro quite significantly in the next couple of months until the end of next year and this will see gold prices fall," Commerzbank analyst Daniel Briesemann said. "Pressure is clearly there and I would be very surprised to see gold show more upside."
The dollar climbed to a four-year peak against a basket of major currencies, before paring some gains as data showed the pace of business activity growth in the US Midwest decelerated slightly in September. The US currency has posted a record-breaking 11 weeks of successive gains on expectations the Federal Reserve will raise interest rates well ahead of its counterparts in Japan and the euro zone.
The US central bank indicated this month that it could raise borrowing costs faster than expected when it starts moving. The next market focus will be the release of September non-farm payrolls data on Friday. The strength in the dollar has been driving gold's declines over the past few weeks. A stronger US currency makes dollar-denominated precious metals more expensive for holders of other currencies. Investors tend to withdraw from non-interest-bearing assets to seek higher yields elsewhere when the dollar gains.
"The pressure is definitely on for gold to end the year in the red," said Howie Lee, investment analyst at Phillip Futures. "We see little in the way to stop gold's downward slide, given that the Fed has made clear its intention to hike (rates) sooner (rather) than later and the Ukraine tensions have reached a fragile cease-fire. Investors were also watching political unrest in Hong Kong as any worsening of tensions there could lead to some investment demand for gold.
Tens of thousands of pro-democracy protesters blocked Hong Kong's streets on Tuesday, maintaining pressure on China as it faces one of its biggest political challenges since the Tiananmen Square crackdown 25 years ago. The protests, however, could hit retail sales in the region, a hot spot for tourists from mainland China, especially during the one-week National Day holiday that begins on Wednesday, bullion dealers said. Lower gold prices dragged other precious metals down, with silver hitting its lowest since March 2010 at $17.07 an ounce and headed for its biggest quarterly loss since mid-2013. Platinum was down 0.1 percent at $1,298.70 an ounce and set for a 12 percent quarterly drop. Palladium fell 1.9 percent to $771.50 an ounce, having touched a five-month low earlier and was also poised for a monthly and quarterly loss.
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