Gold price firms despite gains in the dollar and a rally in markets

December 12, 2018

London (Dec 12)  Gold prices firmed on Wednesday, as expectations of fewer rates hikes in the US partially offset gains in the dollar and a rally in stock markets on hopes of a thaw in US-China trade relations.

Spot gold was up 0.1% at $1,244.51 per ounce at 10.50am, while US gold futures rose 0.2% to $1,249.90 per ounce.

"The fact that we are seeing some risk coming back to the market: the stocks are climbing, the dollar is up and the yen is weaker, does remove some of the demand in gold. But overall, it's holding relatively well but is missing a spark to move higher," said Saxo Bank analyst Ole Hansen.

The dollar rose for a third consecutive day as US treasury yields rose ahead of a US federal open market committee (FOMC) meeting next week, while stock markets rallied as US President Donald trump sounded upbeat about a trade deal with China.

"Next week's FOMC meeting is going to be the last major economic event of the year. The [gold] market has started to price in the 'one and done' interest rate scenario, and has responded quite positively to that," Hansen said.

Fed policy makers are widely expected to raise interest rates at their December 18-19 meeting, but the market focus is on how many rate increases will follow in 2019.

Expectations of lower interest rates reduce the opportunity cost of holding nonyielding bullion.

Investors kept an eye out for developments around US-China trade talks, and Brexit after legislators in Prime Minister Theresa May's Conservative party gathered enough support to trigger a no-confidence vote in her leadership.

"With the [US-China] talks appearing to be going well, this could put the dollar under pressure in the coming months and support gold which now has $1,260 in its sights," Oanda analyst Craig Erlam said.

"Stalled Brexit talks are taking the shine off this at the moment and supporting the dollar but should this pass then gold will continue to look bullish as it continues its hike towards $1,300."

Bullion touched its highest level in five-months at $1,250.55 earlier this week and has recovered about 8% from a 19-month low of $1,159.96 in mid-August.

Indicative of investor interest in gold, holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose to the highest since late August on Tuesday.

Among other precious metals, spot palladium was trading at a premium to gold, with prices of the autocatalyst metal rising more than 1% to $1,256.35 an ounce.

Palladium is likely to face resistance around the $1,258-$1,261 level, Commerzbank analysts said in a weekly note.

Spot silver was up 0.7% at $14.63 per ounce, while platinum was 0.9% higher at $788.40 per ounce.


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