Daily Gold Update

Source: Bill Musgrave, American Gold Exchange

Austin— Gold slid another 0.5% to close under $1,136, the lowest level in a month, as traders continue to fret over the prospect of higher interest rates following last week's hawkish statement from the Fed.

While the central bank held interest rates near zero last week, as expected, it introduced a specific time element into its decision for the first time, saying it will determine �whether it will be appropriate to raise the target range at its next meeting.� The decision on timing remains contingent on the performance of the economy, but traders took the Fed statement to imply a clear bias toward December.

The markets have reacted swiftly, with gold losing 3.5% over the past three sessions. Higher rates would strengthen the dollar and weigh on gold and other commodities denominated in it for international trade by making them more expensive to users of other currencies.

Still, a rate hike this year is by no means a done deal. U.S. economic data since the meeting has been anything but good. GDP in the third quarter fell to just 1.5%; consumer spending rose in September by the smallest amount in eight months; and consumer inflation as measured by the core PCE index, a favored Fed gauge, is merely 1.3% year-over-year, well below the Fed's target 2%.

Today, the ISM reported that manufacturing fell in October to barely above contraction, hamstrung by falling foreign demand and the strong dollar, while sector employment fell to the lowest level in six years. And China's manufacturing contracted for the third straight month, something that will also catch the Fed's attention. The committee said in September that China's economic slowdown was a reason to be cautious about rates.

While all of this soft data has yet to counteract rate anxiety, it may by week's end. Friday's release of the new nonfarm payrolls report could be a make or break for near-term gold prices. If October continues the lackluster hiring of August and September, a December rate hike becomes far less likely and a solid rebound in gold becomes far more likely.

The other precious metals also fell, with silver losing 1% while platinum and palladium lost 1.1% and 3.9%, respectively.

At the Comex close: December gold dropped $5.50 to $1,135.90; December silver slid 16 cents to $15.41; January platinum shed $10.70 to $978.40; and December palladium plunged $26.90 to $650.35 an ounce.