Gold languishes near 5-1/2 year low on September rate hike fears

Investing.com – Gold prices struggled near a five-and-a-half year low on Tuesday, amid ongoing expectations for a September U.S. rate hike.

for December delivery on the Comex division of the New York Mercantile Exchange dipped $1.30, or 0.12%, to trade at $1,088.10 a troy ounce during European morning hours after hitting a session low of $1,080.30 overnight.

A day earlier, gold declined $5.70, or 0.52%, to close at $1,089.40. Futures fell to a five-and-a-half year low of $1,072.30 on July 24. Gold prices lost $79.50, or 6.72%, in July, the biggest monthly decline since June 2013.

Gold has been under heavy selling pressure in recent weeks amid speculation the Federal Reserve will raise interest rates for the first time in nine years in the coming months.

The central bank sounded more upbeat about the economy following its policy meeting last week, leaving the door open for an interest-rate hike as soon as September.

Expectations of higher borrowing rates going forward is considered bearish for gold, as the precious metal struggles to compete with yield-bearing assets when rates are on the rise.

Investors looked ahead to the release of key data later in the session for further indications over the timing of a U.S. rate increase and the strength of the economy.

The U.S. is to release data on factory orders later Thursday. Market players are also focusing on Friday's nonfarm payrolls report.

The , which measures the greenback’s strength against a trade-weighted basket of six major currencies, was at 97.53 early on Tuesday, little changed on the day.

The dollar index rose 1.86% in July, boosted by expectations that the Federal Reserve could raise rates as soon as September if the economy continues to improve as expected.

A stronger U.S. dollar usually weighs on gold, as it dampens the metal's appeal as an alternative asset and makes dollar-priced commodities more expensive for holders of other currencies.

Also on the Comex, for September delivery shed 0.5 cents, or 0.03%, to trade at $14.51 a troy ounce.

Elsewhere in metals trading, for September delivery inched up 1.0 cent, or 0.44%, to trade at $2.356 a pound during morning hours in London. On Monday, copper tumbled to $2.321, a level not seen since June 2009, following the release of disappointing Chinese manufacturing activity data.

The for July released on Monday fell to 47.8 from a preliminary reading of 48.2. It was the lowest reading since July 2013.

Copper traders view Chinese factory activity as an indicator of the nation's copper demand, as the red metal is widely used by the sector.

Prices of the red metal sank 25.1 cents, or 9.6%, in July, as steep declines on China's stock market rattled investors' confidence.

China is the world’s largest copper consumer, accounting for almost 40% of world consumption last year.