Gold price down as Fed caution kicks in, oil woes continue

Otmane El Rhazi from The Bullion Desk.

Gold fell in Monday morning trading ahead of the Federal Reserve’s last meeting of the year.

Spot gold was last at $1,213.80/1,214.60 per ounce, down $8 on the pre-weekend close and trading within a $14 intraday range, with the dollar at 1.2422 against the euro.

The metal has fallen for the second consecutive session while investors take up positions ahead of FOMC meeting on Wednesday, which could shed light on future monetary policy in the US – the phrase “considerable time”, which suggests when the Fed may choose to raise interest rates from their current rate near zero – could be removed from its statement.

But while there are signs that the US economy is strengthening after the end of quantitative easing at the end of October – including the vastly improved labour market – the country continues to struggle with low inflation created by slowing world growth and weak oil prices.

A mover towards a near-term interest-rate rise would push investors to yield-bearing assets such as bonds and equities, sending gold swiftly lower.

“If the Fed does remove the term ‘considerable time’ in this month’s edition, the indication would be increasingly apparent that a rate hike is on the cards,” investment analyst Howie Lee from Phillip Futures said.

Elsewhere, oil prices, which hit fresh multi-year lows this morning, are also weighing on prices.

“As an inflation hedge, gold and to a degree the other precious metals, is likely to come under pressure during periods of sustained oil price drops, as, in addition to reflecting weak demand and deflationary impulses, falling oil prices also act to reduce inflation outright and therefore the inflation demand for gold,” HSBC Securities analyst James Steel said.

Brent crude hit $60.49 in early morning trading, a fresh five-and-a-half-year low, though it has since recovered to $62.84 per barrel.

In data, the Empire State manufacturing index, capacity utilisation rate, industrial production, NAHB housing market index and TIC long-term purchases are due from the US.

Elsewhere, there are growing expectations the People’s Bank of China will impose further stimulus measures to counteract the slowing economy, considering the recent spate of disappointing data.

In other metals, silver at $16.84/16.89 per ounce was down 14 cents, slipping below the key psychological level of $17, while platinum at $1,214/1,224 was $3 lower and palladium was up $1 at $809/814.

“We expect dips to remain well supported and for sentiment to gradually become less bearish and more bullish, especially for the PGMs,” FastMarkets analyst William Adams said.

(Editing by Mark Shaw)

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