SINGAPORE – Gold edged higher yesterday as Asian equities tumbled, but the metal continued to struggle near an eight-month low due to weak physical demand and fears the Federal Reserve may signal an early interest rate increase at this week’s policy meeting.
The Fed meeting may be pivotal as it debates a potential overhaul of its guidance on interest rates and seeks to nail down a plan for quitting its extraordinarily easy monetary policy.
Investors will parse the United States central bank’s words closely for any clues on the timing of the first US rate rise in more than eight years.
An announcement is expected tomorrow at the end of the two-day meeting. Any increase in interest rates would hurt non-interest-bearing gold and boost the dollar.
“The (Fed) meeting this week will dictate price action for the precious metals,” MKS group metals dealer Samuel Laughlin said.
“Market consensus is for a June 2015 rate increase. However, any Fed comment hinting at an earlier rise would put further downward pressure on the metals.”
Spot gold fell to $1 225,30/oz, its lowest since January, early yesterday before climbing 0,4% on balance to $1 232,94 by 3:30am. Last week, gold fell 3% as the dollar index posted its ninth consecutive weekly gain.
Traders said the small gain could be due to safe-haven bids after Asian stocks fell to a five-week low due to a batch of weak data out of China.
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Unwinding of some short positions, which had built up significantly in the past few weeks, could also be a factor in providing some support yesterday.
But investor sentiment towards gold remained weak, with hedge funds and money managers cutting bullish futures and option bets in gold to their lowest in nearly three months, Commodity Futures Trading Commission data released on Friday showed.
Dollar strength and weak physical demand are also weighing on bullion.
Asia – the top gold-consuming region – has not shown too much interest in buying the metal at lower prices as buyers expect further declines.
“There is still very little interest from China,” ANZ analyst Victor Thianpiriya said.
China is the biggest buyer of gold and robust buying in the country could lend support to global gold prices.
Thianpiriya said the sluggish demand was not, however, isolated to China.
– Reuters
