Gold prices lift on low volumes ahead of FOMC
London (Sept 16) Gold prices were higher on the London spot market on Wednesday, as uncertain market participants traded low volumes ahead of the Federal Reserve's two-day meeting, which is expected to provide clues on the possible timing of a rate rise.
Spot gold was up 0.4 per cent at $US1,108.85 a troy ounce in midmorning European trade, moving in a narrow $US5 range between $US1,104.16 an ounce and $US1,109.98 an ounce.
The Federal Open Market Committee will meet on Wednesday and Thursday, which could result in a decision to raise US interests rates for the first time in almost a decade.
"Market participants are clearly reluctant to position themselves ahead of the interest rate decision, preferring instead to wait on the sidelines," said Commerzbank.
A rate increase would strengthen the dollar, which would suppress demand for the dollar-denominated precious metal. Furthermore, as gold doesn't bear interest, it is a better competitor of assets that do, like Treasurys, when interest rates are kept near zero.
While market consensus leans toward a December interest rate increase, analysts and market watchers say gold is likely to remain quiet until the risk of a September hike is eliminated.
Palladium, meanwhile, was the only precious metal trading in negative territory. The more industrial of the precious metals is predominantly used in car autocatalytic converters to reduce engine emissions. Patchy auto sales data in key regions, however, has weighed on prices recently.
According to Macquarie, there is a bullish case for Chinese auto sales due to driver population being in a high growth phase while penetration of cars is low. For this reason, it believes "negative sentiment has been overdone" on palladium prices.
Spot palladium trading was down 0.9 per cent at $US595.20 an ounce.
Among the other precious metals, spot silver was up 1.1 per cent at $US14.550 an ounce and spot platinum was up 0.3 per cent at $US962.51 an ounce.
Source: Business-Spectator.au
