Gold Price Edges Lower on Stronger Dollar

London (Sept 2)  Gold prices were trading slightly lower on the London spot market Wednesday, fluctuating between gains and losses, as a stronger dollar offset improved investor sentiment amid volatile financial markets.

Spot gold was down 0.04% at $1,139.31 a troy ounce in morning European trade, having bounced narrowly between $1,142.46 an ounce and $1,135.68 an ounce during the session.

The dollar was up against a basket of currencies, including the euro, sterling and the yuan. Gold is a dollar-denominated commodity, and becomes more expensive for other currency-holders to buy when the greenback gains.

However, losses were offset by consensus among market participants that a rate rise by the U.S. Federal Reserve will likely occur either later-than-expected this year or even early next year.

“There is still uncertainty about when the fed will lift rates, I think that is the major driver,” said Robin Bhar, head of research at Société Générale. “The longer it is delayed, then that will support the gold market.”

Gold competes better with interest-yielding assets, like Treasurys, when rates are pinned close to zero. A rate increase would also strengthen the dollar, which is bad news for the precious metal.

As the mood for gold becomes more bullish, UBS said global gold exchange-traded funds have mainly stemmed their dramatic withdrawals. According to research firm Markit, inflows into gold ETFs stabilized slightly in August and increased by $304 million, after seeing heavy outflows in July.

Looking ahead, uncertainty around China’s economy is likely to be good for gold, which is typically seen as a safe-haven asset.

“Continued concerns over China and the contagion from there seem likely to underpin interest in gold,” William Adams, head of research at Fastmarkets, wrote in a note.

China has sparked volatility in financial markets, after a series of economic stumbles and a spate of government interventions. The Asian giant accounts for almost a quarter of global gold demand.

Looking ahead, gold prices are seen to remain range-bound between $1,125 an ounce and $1,145 an ounce until the Fed moves to lift rates, said Mr. Bhar.

The other precious metals were split midweek. Spot silver was down 0.1% at $14.536 an ounce, while spot platinum was up 0.7% at $1,008.41 an ounce and spot palladium was up 0.2% at $568.80 an ounce.

Source: WSJ