Gold Weakens as Market Weighs European Banking Woes, Fed Rate Expectations

By Ira Iosebashvili 

Gold prices fell on Friday, after shuffling between gains and losses as investors weighed concern about Europe's banking woes against heightened expectations of a Fed rate increase in December.

Gold for December delivery closed down 0.7% at $1,317.10 a troy ounce on the Comex division of the New York Mercantile Exchange. Prices were as high as $1,331.50 a troy ounce earlier in the session.

European markets were rattled on Friday over mounting worry over Deutsche Bank, Germany's largest financial institution, including reports that some hedge funds had moved to pull their own funds from the bank. That benefited gold, which some investors buy in times of political or economic uncertainty, believing it will hold its value better than other assets.

As the session wore on, the focus turned to increasing expectations that the U.S. Federal Reserve will raise rates by the end of the year. Fed-funds futures, used to bet on central-bank policy, showed investors assigned a 61.6% likelihood to a rate increase in December, up from 52% the previous day, according to CME data on Friday.

Expectations for higher rates tend to weigh on gold, which yields nothing and struggles to compete with Treasurys and other investments when borrowing costs rise.

As a result, "bullion looks a little sluggish," analysts at HSBC wrote in a note to clients. "The market may have to edge lower before it finds firm support."

--Katherine Dunn contributed to this article

Write to Ira Iosebashvili at [e-mail]

(END) Dow Jones Newswires

September 30, 2016 15:36 ET (19:36 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.