Gold recovers as dollar slips; US rate hike outlook caps bullion's gains
Mumbai-India (Mar 3) Gold edged higher on Tuesday, recovering from early losses that pulled it briefly below $1,200 an ounce, as the dollar came off an 11-year peak against a basket of currencies.
But expectations for a US interest rate hike limited the bullion’s gains, keeping it below Monday’s two-week high. Gold fell the most in five months in February, with the Federal Reserve seen to be set to lift rates this year for the first time since 2006 amid a generally strengthening US economy.
Spot gold was up 0.2 per cent at $1,209.60 an ounce at 0619 GMT after falling nearly 1 per cent earlier to a session low of $1,194.90.
Firm Chinese demand had kept gold above $1,200 since last week, climbing to a two-week top of $1,223.20 on Monday.
US gold for April delivery gained 0.1 per cent to $1,209.70 an ounce after dropping to $1,194.60.
The greenback eased from the day’s highs versus a basket of major currencies, making dollar-denominated assets such as gold cheaper for investors holding other currencies.
“Despite the fact that most people are swaying back and forth on the timing of the US rate hike, there is still consensus that it will happen this year,’’ said Mark To, head of research at Hong Kong's Wing Fung Financial Group.
Seven of the Fed’s current 17 members have now said they at least want the option of an interest rate hike in June on the table, or have pushed in general for an earlier increase in expectation that wages and inflation will turn higher.
To said he expects gold to trade between $1,180 and $1,220 in the short-term, and does not see demand from top consumers China and India providing any lasting support.
“We should not have any fantasy that physical gold demand can pull gold out (from low levels),’’ said To. “In China and India, we can see that the peak for physical gold demand has passed.’’
Structural reforms in China aimed at a more sustainable pace of economic growth would keep gold demand in check, he said. Most analysts expect China’s gold imports via main conduit Hong Kong to recover this year, but to stay below the record 1,158.16 tonnes seen in 2013.
India has kept the gold import duty at a record 10 per cent in a setback for jewellers when it unveiled its budget over the week-end.