Gold (Other OTC: GDCWF – news) ‘s safe haven appeal has been dulled after prices endured a two-week slump
Gold prices have endured a two-week slump after jobs data from the US kept an interest rate rise on the cards and dulled its appeal to would-be buyers.
The yellow metal, which is often viewed as a safe haven by investors , has slumped by $ 50, or 3.5pc, from a high of $ 1,170 per ounce on August 24, to close at $ 1,120 per ounce at the end of last week.
The US Federal Reserve is still on course to increase the key central bank borrowing rate before the end of the year, and this will dull the precious metal’s appeal, as it offers no interest, or income, to investors.
A crucial US employment report showed the country’s economy added a net 173,000 jobs in August. The unemployment rate dipped from 5.3pc in July, to 5.1pc in August, bringing it to a seven-and-a-half-year low.
The data was viewed by market participants as being “good enough” to allow the Federal Reserve chairman, Janet Yellen, to increase US interest rates from a record low of 0.25pc, for the first time since 2006.
Gold prices were slammed earlier in the week as the outlook for the European economy was downgraded.
The European Central Bank lowered its expectations for inflation and growth during the next three years amid “a slowdown in emerging markets and weaker oil prices”.
The precious metal is often viewed as a store of value which protects against the ravages of high inflation.
In the face of slowing growth and to support febrile markets ECB president Mario Draghi hinted at more quantitative easing last Thursday, which added to gold’s woes.
The comments sent the euro sharply lower against the US dollar, and this weighed on the value of gold as it is seen as a substitute for the US dollar and moves in the opposite direction to the currency.
The slump has brought to an end a brief August rally as market turmoil, coupled with fears over the impact of a slowdown in the Chinese economy, drove investors into gold.
