Gold slid to a two-month low on Wednesday after forecast-beating US jobs data stoked speculation that the Federal Reserve would move ahead with plans to raise interest rates, propelling the dollar index to its highest in three weeks. The dollar rose after a report by a payrolls processor showed US private employers added 177,000 jobs in August, above economists' forecasts. That supported expectations for Friday's closely watched US payrolls report to be strong.
An upbeat payrolls report would support the view that further US rate hikes may be on the cards, after Fed officials sounded a hawkish note at a meeting last weekend. Spot gold fell to its lowest since June 24 at $1,304.91 an ounce and was $1,309.60 an ounce at 1400 GMT, down 0.1 percent. The metal is heading for a 2.8 percent drop in August. US gold futures were down $4.10 at $1,312.40.
Technical selling, US dollar strength and rate hike speculation have been behind gold's weakness on Wednesday, Commerzbank analyst Carsten Fritsch said, adding that gold is now closing in on support at the psychologically key $1,300 level. "The last time gold traded below $1,300 an ounce was on the day after the Brexit referendum," he said.
The precious metal surged 5 percent in a single day after Britain voted to leave the European Union in late June, subsequently hitting more than two-year highs. It has now surrendered the bulk of those gains. Fed Chair Janet Yellen said on Friday the case for higher rates was strengthening, while Vice Chair Stanley Fischer later suggested an increase could come as soon as September. Fischer said in an interview on Tuesday that the US job market is nearly at full strength.
Gold is highly sensitive to rising US interest rates, which increase the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced. "Nerves have become a bit fraught ahead of the September FOMC meeting, given the latest comments from Janet Yellen," Saxo Bank's head of commodities research Ole Hansen said. "The rising dollar and US real rates have also been creating headwinds.
"But it all seems to be going in slow motion. We have seen no panic from either exchange-traded product investors, where holdings are up on the month, while hedge funds have only reduced net longs by 8 percent from the July peak." Silver was up 0.5 percent at $18.66 an ounce. Platinum was 0.1 percent higher at $1,052.80, having earlier touched an eight-week low of $1,047.35. Palladium was down 0.2 percent at $676.20.