Gold price close to three-week lows as dollar firms on rate increase expectations
London (May 3) Gold hovered near three-week lows on Wednesday as the dollar firmed on expectations of a US interest rate increase in June and the market discounted a surprise win by France’s far-right presidential candidate.
The US Federal Reserve is expected to hold interest rates steady after concluding its two-day meeting on Wednesday, but it might focus on future rate hikes, which would reduce demand for non-interest bearing gold.
Spot gold was down 0.2% at $1,253.86 an ounce, as at 10am GMT after touching its lowest since April 10 on Tuesday at $1,251.37. US gold futures fell 0.1% to $1,255.40 an ounce.
"The focus for gold today is definitely on the Fed and markets are now speculating that the next hike will take place at the June Federal open market committee meeting," said Quantitative Commodity Research analyst Peter Fertig. "We have the typical drivers for gold: the US interest rate ... the US dollar and also a decline of political uncertainty in Europe."
As well as reducing demand for non-interest bearing gold, higher rates would make the dollar-denominated metal more expensive for buyers paying with other currencies. Traders are pricing in a 70% chance of a June rate increase, according to the CME Group’s FedWatch Tool.
The dollar firmed 0.1% at 98.920 against a basket of major currencies. European stocks hovered near 20-month highs after strong gains this week on forecast-beating company earnings and signs of global economic strength.
In the French elections, the top two presidential rivals go head-to-head on Wednesday in a televised debate in the last encounter before Sunday’s run-off in which opinion polls predict a win by centrist Emmanuel Macron. Fears that far-right candidate Marine Le Pen could sweep to a surprise victory had buoyed gold in recent sessions due to its safe-haven appeal.
"The yellow metal is finding it difficult to move away from $1,250 amid firming global equity markets," said Sam Laughlin, senior precious metals trader, MKS PAMP Group. "Should we see any surprises from the Fed to push gold below the 200-day moving average, expect the next target on the downside to sit around $1,230 and $1,235; however, risks surrounding the upcoming French election should temper declines."
Silver was flat at $16.80 an ounce, after touching a fresh three-month low of $16.71. Platinum hit a four-month low of $911, before moderating to trade 0.2% down at $920.90. Palladium rose 0.9% to $807.35 an ounce.
Source: Reuters
