Gold Price Gains Luster Ahead of Fed Meet
London (Oct 27) Gold prices were slightly higher on the London spot market Tuesday, ahead of a meeting of the U.S. Federal Reserve. Expectations that U.S. interest rates will remain unchanged and a weaker dollar contributed to demand for the precious metal.
Spot gold was up 0.3% at $1,166.16 a troy ounce in morning European trade.
The two-day Federal Open Market Committee meeting starts later on Tuesday. Market participants believe it will provide greater clarity over the timing of a rise in U.S. interest rates. The market believes rates will likely remain low until early 2016, however traders exercised caution and prices moved within a tight $5 range.
The Fed chose to keep rates unchanged at its meeting in September, but has indicated that it could raise them before the end of the year.
“If the Fed were to signal a possible rate hike before the year is out, this would presumably put pressure on the gold price and therefore also on other precious metal prices given the market positioning of speculative investors,” said Commerzbank in a note.
Gold doesn’t yield interest and finds it difficult to compete with assets that do, such as Treasurys, when interest rates are higher. A rate hike would also boost the dollar, which would be bad news for dollar-denominated commodities like gold, as it makes them more expensive to buy for those holding stronger currencies.
On Tuesday, a softer greenback offered gold some support, with the ICE Dollar Index recently down 0.1% at 96.81.
Going forward, analysts are increasingly bearish on the outlook for gold due to a trio of factors.
“Lack of inflation, emerging financial stability in Europe, and robust economic activity in the U.S. are all bearish for gold,” says Morgan Stanley in a research report. “Expect further downside, if the miners start to hedge.”
Among the other precious metals, spot silver was up 0.6% at $15.880 an ounce, spot platinum was down 0.4% at $989.41 an ounce and spot palladium was up 0.03% at $679.22 an ounce.
Source: WSJ
