Gold marooned near five-month lows as US rate hike looms
London — Gold prices held near their lowest in nearly five months on Wednesday as investors looked ahead to an expected US interest rate increase and clues from the US Federal Reserve on its plans for further rises next year.
The Fed’s policy statement and latest economic projections are due at 7pm GMT (9pm SA time) and chairwoman Janet Yellen will give a news conference half an hour later, her last before her four-year term ends early next year.
The Fed has increased rates twice this year and is expected to raise them three more times in 2018.
Gold is sensitive to rising rates because they push up bond yields, reducing the appeal of non-yielding gold. They also tend to boost the dollar, making gold more expensive for holders of other currencies.
Spot gold was down 0.2% at $1,241.53 an ounce at 11.32am GMT. On Tuesday it touched $1,235.92, the lowest since July 20.
US gold futures were up 0.1% at $1,243.40 an ounce.
Gold prices had tended to fall before recent US rate hikes but recover shortly afterwards, said Saxo Bank analyst Ole Hansen.
Yellen’s successor, Fed governor Jerome Powell, has hinted that he has a cautious approach to rate increases, saying he has “no sense of an overheating economy”.
Much would depend on the projections, said Think Markets analyst Naeem Aslam.
“If the Fed comes out of the gate with more hawkish views on the economy and sees inflation improving, it could impact the dollar index. Any further strength in the dollar index would push the gold price lower,” Aslam said.
The dollar weakened on Wednesday after Democrat Doug Jones won a US Senate seat in Alabama, reducing the Republican majority and likely making it harder for them to enact tax cuts that would stimulate the economy.
On the technical side, fibonacci support for gold was at about $1,240 and a close below that level could trigger further falls, said Saxo Bank’s Hansen.
Analysts at ScotiaMocatta said momentum indicators showed gold could fall towards its July low of $1,204.90.
Demand for gold as insurance against geopolitical risk could also fall after US Secretary of State Rex Tillerson offered to begin direct talks with North Korea without preconditions, INTL FCStone analyst Edward Meir said.
In other precious metals, silver was down 0.4% at $15.66 an ounce, near Tuesday’s five-month low of $15.61.
Platinum was flat at $876.40 an ounce, after touching its lowest since February 2016 at $868.80 on Tuesday.
Palladium was down 0.3% at $1,009.40 an ounce.