Gold steady as Fed seen readying rate hike path
London (Mar 18) Gold prices were steady on Wednesday, staying near four-month lows, as investors remained cautious pending the conclusion of a Federal Reserve meeting that may stoke expectations for a midyear hike in US interest rates.
US. Fed officials started a two-day policy meeting on Tuesday. Markets have largely priced in that they will drop the word “patient” from their forward guidance on interest rates, potentially paving the way for their first rate hike since 2006 in June.
“The timing of the first US rate hike is a driving factor for the gold market at the moment,” Julius Baer head of commodity research Norbert Ruecker said.
“We have a bearish view, especially longer term, as the global economy is incrementally improving and growth risks are reduced, which means that there are simply fewer reasons to buy gold as a safe haven.” Spot gold was down 0.1 per cent at $1,147.75 an ounce by 1250 GMT, just above its lowest since November 7 at $1,142.86, hit on Tuesday.
The dollar was little changed against a basket of currencies, while European shares rose.
HSBC said US inflation data may not be strong enough to prompt a rate hike in June, and policymakers could wait until September before taking any action.
“The removal of the word “patient” from the FOMC’s [Federal Open Market Committee] guidance may initially pressure gold prices, especially if it helps to further boost the dollar,” HSBC said in a note.
Firming labour market
Gold, a non-interest yielding asset, has dropped 3 per cent since the start of the year on expectations for a US rate hike.
While the US economy has been strengthening as evidenced by a firming labour market, the housing sector remained weak, suggesting the Fed is unlikely to engage in an aggressive hiking cycle after an initial rate increase.
Data on Tuesday showed US housing starts plunged to their lowest level in a year in February.
Holdings in the SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, dropped 0.4 per cent to 747.98 tonnes on Tuesday.
Platinum was down 0.3 per cent at $1,090.95 an ounce, having fallen to its lowest since May 2009 at $1,084.50 an ounce on Tuesday. The metal has fallen more than 8 per cent since the start of the year and was trading at a discount of about $56 an ounce to gold — the widest spread since March 2013.
Silver was down 0.1 per cent at $15.49 an ounce, while palladium rose 0.5 per cent to $764.75 an ounce.