Political uncertainty fuels gold's push to 6-week high
London (Jan 11) Gold hit six-week highs on Wednesday as investors worrying about political uncertainty bought the precious metal, but dollar strength due to higher U.S. rates is expected to cap gains.
Spot gold was down 0.1 percent at 1186.45 an ounce at 1044 GMT from an earlier peak at $1,191.32. U.S. gold futures gained 0.3 percent to $1,188.70.
The trigger for early gains was U.S. President-elect Donald Trump's first formal news conference at 1600 GMT. Investors will focus on what Trump has to say about trade and relations with China and his plans for the economy.
"Major political risks include elections in France, the
Netherlands and Germany, which could lead to tensions in the
European Union," said Quantitative Commodity Research analyst
"The uncertainty surrounding Brexit could lead to further
demand for gold from retail investors in the UK."
Offsetting the political uncertainty argument is the U.S.
currency, holding near a 14-year high against a basket of
currencies, making dollar-denominated commodities more expensive
for holders of other currencies.
The U.S. Federal reserve is expected to wait until the
second quarter of 2017 before it raises rates. But after the
December meeting, Fed policy makers signaled the possibility of
three rises this year.
That may mean higher U.S. Treasury yields, making it cheaper
for investors to buy U.S. government bonds, which like gold are
seen as risk-free. But unlike gold which earns nothing and costs
to insure and store, Treasuries earn regular coupons.
On the technical front, upside resistance kicks in around
$1,194, the 55-day moving average and traders say, breaking back
above $1,200 would need strong momentum.
Elsewhere silver was down 0.2 percent at $16.76 an
ounce from Tuesday's four-week high at $16.90.
Platinum slipped 0.2 percent to $976.25 from an
earlier two-month peak at 982.60 and palladium dropped as
much as 0.3 percent to $761.90 an ounce.
Palladium touched a five-week high of $768.1 on Monday.
Investors expect the industrial precious metal will benefit if
tax cuts and higher government spending in the major car markets
of China and the United States boost auto sales.
"While the medium to longer-term demand backdrop remains
compelling given its dominant usage in catalysts of gasoline
fuelled cars, we still expect a short-term dent," Julius Baer
analysts said in a note.
Palladium has a strong relationship with vehicle sales,
which were strong last year.
"Sales in China were fuelled by a tax cut, prompting
consumers to pull forward purchases. The tax cut was halved at
the beginning of this year and should result in lower sales over
the course of the coming months."