Comex gold traded a tight range on Tuesday in the run-up to the widely expected Federal Reserve announcement after the precious metals market closed that US interest rates would go up another quarter percentage point, even as it acknowledged economic growth had moderated.
December gold settled down 70 cents at $402.30 an ounce. It recovered from a slump to $401.00 to reach $403.40 which was just shy of the $404.00 peak hit on Fridays breakout on disappointment that the economy generated just 32,000 new jobs in July, the smallest gain of the year.
In lifting the target for the fed funds overnight lending rate between banks to 1.50 percent from 1.25 percent, the Fed said the economy was poised to pick up after a slowdown. The closely scrutinised statement also noted that the softness in growth was caused by substantial rise in energy prices.
Paul McLeod, a vice president of bullion trading at Commerzbank said he saw the remarks as neutral. "We may try to read into it that they may not continue with 25 points at every meeting for rest of this year," he said.
"They may want to see another employment report or two. So potentially it could become bullish for gold." Financial markets have begun to scale back bets in fed funds futures that the Fed could hike several more times this year, given ample signs that the economy is going through a sluggish period.
Still, record high oil prices have brought the spectre of rising inflation, even if it threatens to choke off growth. Leonard Kaplan, president of Prospector Asset Management said in a client note on Tuesday that financial markets had not factored in that interest rates must rise by at least 200 basis points just to bet back to neutrality.
The Fed ended a historic 3-1/2 year easy money period in June, when it raised rates by a quarter percentage point. "My sense is that the Fed raises rates by 25 basis points at each and every opportunity until very late this year," he wrote.
"Such actions will most probably keep the precious metals at bay, and keep the dollar rather strong going into the elections." Spot gold was quoted at $399.90/0.40, down from Mondays close at $400.50/1.00 in New York.
On Tuesdays afternoon fix in London was $399.50. Comex September silver slipped 1.5 cents to $6.722 an ounce, trading from $6.685 to $6.825. Spot silver was unchanged from the close at $6.69/72 and fixed at $6.68.
Nymex October platinum rose $14.60 to settle at $850.40 an ounce after setting a four-month high at $851.90. Spot platinum fetched $845.00/850.00. Dealers said Japanese buying on the Tokyo Commodity Exchange was propelling platinum prices upward.
At the same time a strong South African randy fanned worries that exports from the biggest platinum producer would become uneconomical. September palladium gained $2.25 to settle at $218.00 an ounce. Spot palladium was at $213.00/218.00.
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