Gold rose on Monday after oil powered to another record high above $119 a barrel, but investors may be careful about taking large position ahead of this week's meeting on interest rates by the Federal Reserve. Gold has lost more than 13 percent in value since spiking to a lifetime high of $1,030.80 an ounce on March 17.
It has been struggling to regain $900 and hit a three-week low of $877.60 on Friday before rebounding after oil struck an all-time peak high. Bullion rose to $892.60/893.60 an ounce from $886.90/888.30 an ounce late in New York on Friday, as surging oil prices boosted the metal's appeal as a hedge against inflation and helped it defy a firming dollar.
"I think the key for gold would be how it shapes up after the FOMC meeting," said David Moore, an analyst at Commonwealth Bank of Australia in Sydney. "I think at the moment, our expectations is the Fed will cut rate by 25 basis points. How the US dollar reacts to the Fed's rates decision, I think, will be a key to the near-term direction of gold," he said.
The Federal Open Market Committee will announce its decision around 2:15 pm EDT (1815 GMT) on Wednesday. Gold has gained on speculative buying spurred by record high oil prices and expectations of more rate cuts in the United States, which reduces the dollar's appeal and makes gold more appealing for investors seeking an alternative investment.
Gold futures for June delivery on the Comex division of the New York Mercantile Exchange added $5.8 an ounce to $895.5 an ounce. "The support is holding for now but gold remains vulnerable to further selling with the euro expected to weaken further.
The range for gold should be around $876-$910," Phillip Futures said in a report. The dollar hit a high of as 104.83 yen on trading platform EBS, the highest since late February, on expectations the Fed may stop cutting interest rates before the policy meeting.
The euro edged up to $1.5640 but held near a three-week low of $1.5555 hit on Friday. "There's short-covering after the market dropped a lot on Friday. There's some physical buying but I think people had bought a lot last week," said a dealer in Hong Kong, referring to jewellery makers. "I think people are just watching movements in the dollar. If the dollar continues to strengthen, there's a possibility gold will go down $875."
Premiums for gold bars were steady at 20 US cents to the spot London prices in Hong Kong. Platinum rose to $1,966/1,976 an ounce from $1,944/1,964 late in New York. It had fallen to $1,907 an ounce on Friday, it's lowest since April.
The benchmark contract in Tokyo platinum futures, April 2009, jumped nearly 3 percent to 6,440 yen per gram on a weaker yen, up 155 yen from Friday's close. Silver rose to $16.96/17.02 an ounce from $16.83/16.89 an ounce. Spot palladium rose to $438/443 an ounce from $435.50/443.50 an ounce.
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