Gold settles at three-month low on Brexit fears

Brexit fears fuelled a US dollar rally, while signs of a looming US rate hike drove investors out of the metal.

Gold hit a three-month low as the US dollar rallied on Brexit worries. Picture: Akos Stiller/Bloomberg.

Gold slid again on Tuesday, as fears related to Brexit fuelled a rally in the US dollar, while signals that the Federal Reserve might be closer to raising interest rates this year drove investors out of the precious metal.

Gold for October delivery slumped $US42.70 per troy ounce, or 3.26 per cent, to $US1266.30 today, its third straight day of losses and its largest one-day percentage decline since December 2013. That’s its lowest settle value since June 23.

Silver also lost ground, falling $US1.0820 per troy ounce, or 5.76 per cent, to $US17.71, the largest one day dollar and percentage decline since January 2015.

The British pound hit a three-decade low today as the UK government said that it would start the process to extract itself from the European Union no later than March. That sent the dollar up against many world currencies, dampening demand for gold, which is priced in US dollars.

Traders have piled into both precious metals this year, encouraged by a stable dollar and a Fed that has been more averse to raising interest rates than many investors initially expected. Recent signs that the central bank may be gearing up to deliver a rate increase before the end of the year has prompted some investors to take profits. Gold prices are up nearly 21 per cent this year, while silver has risen more than 30 per cent.

“This is definitely a nervous market here,” said Bob Haberkorn, a broker at RJO Futures.

A drop in the British pound to a multidecade low helped boost the dollar. The Wall Street Journal Dollar Index, which measures the US currency against a basket of 16 others, was recently up 0.6 per cent at 86.96. A strong dollar tends to weigh on gold, which is priced in the US currency and becomes more expensive to overseas buyers when the dollar appreciates.

The US currency was also firmer following a rebound in US manufacturing data published Monday and on comments from Federal Reserve Bank of Cleveland President Loretta Mester, who reiterated her call for higher US interest rates.

Fed-funds futures, used to bet on central-bank policy, showed Tuesday that investors assigned a 63 per cent likelihood to a rate increase in December, up from 61.6 per cent the previous day, according to CME data. Expectations of higher rates often pressure gold, as the metal struggles to compete with yield-bearing investments like Treasurys when borrowing costs rise.

Investors are also looking ahead to September non-farm payrolls figures from the US on Friday. A strong number could bolster the case for a rate increase in December and dent gold further, analysts said.

“I think any strength of the US economy is going to be negative for gold,” said John Davies, a global industry strategist at BMI Research.

With Ira Iosebashvili

Dow Jones