Gold prices climb toward a nearly 6-month high as Fed decision looms

New York (Dec 19)  Gold prices on Wednesday climbed toward their highest finish in nearly six months, finding support from a weaker U.S. dollar ahead of the Federal Reserve’s final monetary policy decision of 2018.

Bullion for February delivery on Comex GCG9, +0.48%  rose $6.60, or 0.5%, to reach $1,260.20 an ounce, after putting in the highest settlement since July 10 in the previous session, according to FactSet data. Prices, based on the most-active contracts, were headed for the highest finish since late June and have gained about 2.8% month to date.

The SPDR Gold Shares ETF GLD, +0.44%  also traded 0.2% higher in Wednesday action.

Read: Here’s what 2019 may have in store for commodities such as gold and natural gas

The Federal Open Market Committee’s policy statement and updated projection for future rate increases will be released at 2 p.m. Eastern and that will be followed by a news conference a half-hour later led by Fed Chairman Jerome Powell. Those events occur after a 1:30 p.m. settlement for Comex-traded gold.

Wall Street expects the FOMC to announce a rate increase. However, policy makers will likely indicate that they may be more deliberate about raising borrowing costs further in coming months. A projection of rate expectations by Fed members previously indicated the likelihood for three rate increases in 2019. But an updated plot of rates could reflect a reduced pace of increases next year and the year after.



That is a scenario that may offer some ground for gold to climb.

Higher rates tend to dull the appeal of precious metals, compared against assets that offer a yield. Moreover, an indication that U.S. rate setters will tap the brakes as it attempts to normalize policy may weaken the dollar and provide runway for dollar-pegged gold, which is more attractive to buyers using other monetary units.

One measure of the buck, the U.S. Dollar Index DXY, -0.50% was down 0.5% at 96.605.

Read: With a rate hike priced in, dollar traders wait for Fed’s 2019 guidance

“While the threat of rising interest rates has probably prompted some longs to bank profits and return to the sidelines, the dollar is showing signs of a ‘dovish take away’ from the meeting today and that could allow gold to come out of the meeting today with a positive track,” analysts at Zaner Precious Metals, said in a daily note Wednesday.

“In other words, the gold bulls will be looking for signs that the number of 2019 rate hikes will be reduced or that hikes will simply be delayed well into the first half of 2019,” they said.

Meanwhile, “the threat of a U.S. government shutdown looms [but] it is not clear what impact a shutdown will have on gold and silver,” the Zaner analysts said. “In our opinion, gold and silver could be negatively impacted by a shutdown, as the fear of further softening of the economy probably sparks concerns of weaker demand.”

In other metals trading on Comex, March silver SIH9, +0.98%  added 16.4 cents, or 1.1%, to $14.865 an ounce. It trades around 4.6% higher month to date. March copper HGH9, +1.03% climbed by 0.9% to $2.689 a pound.

March palladium PAH9, +1.10%  added 0.5% to $1,186.50 an ounce, while January platinum PLF9, +0.28%  traded at $796.60 an ounce, up 0.2%.

MarketWatch

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