Gold falls on oil drop, Fed meeting in focus
London (Oct 27) Gold dropped on Monday as crude oil prices tumbled, but further losses were limited by recovering physical demand and expectations the Federal Reserve will wait a long while before hiking interest rates.
The metal came under pressure after US data showed services sector activity dipped to a six-month low in October, and a sharp pullback in crude oil after Goldman Sachs slashed its price forecasts, citing lackluster global demand.
Gold, however, was underpinned as China’s net gold imports from Hong Kong jumped to a six-month high in September.
"Evidence of recovering physical demand in Asia in response to the current low price environment gives confidence that the $1,180 support level may hold," said Jonathan Butler, precious metals strategist at Mitsubishi Corp International.
Spot gold was down 0.2% at $1,228.90 an ounce by 3.47pm GMT, moving in a narrow range of less than $6. The metal is now on track to extend its losing streak to a fourth consecutive session.
US COMEX gold futures for December delivery were down $2.80 an ounce to $1,229 in very light volume.
Investors are focusing on the Fed’s latest policy statement later this week, in which the US central bank will likely reinforce its stated willingness to wait for a long while before hiking interest rates after a volatile month in financial markets.
Any sign the Fed will raise interest rates later than currently expected could benefit gold, as it will keep the opportunity cost of holding non-yielding bullion low for longer.
Gold’s outlook will depend largely on the two-day Fed meeting to be concluded on Wednesday, when the US central bank is also widely expected to end its bond-buying stimulus programme that first began in late 2008 known as quantitative easing (QE).
"Although this is clearly a bearish development for gold as it implies the beginning of monetary policy normalisation, it may have already been priced in," said Mr Butler.
Bullion traders were also closely watching investors’ positions in gold funds. The world’s largest gold-backed exchange-traded fund, New York-listed SPDR Gold Shares, said its holdings fell 4.5 tonnes to 745.39 tonnes on Friday, a six-year low.
That brought the fund’s total outflows last week to 15.5 tonnes, the most of any week since July of last year.
Among other precious metals, silver edged up 0.4 percent to $17.19 an ounce. Platinum rose 0.9% to $1,251 an ounce and palladium was up 0.7% at $781.50 an ounce.