US MIDDAY: gold surges

Gold rose to a two-week high early on Wednesday, gaining for the third straight session and breaching the 200-day moving average amid uncertainty over the timing of a US interest rate increase and ahead of the final US presidential debate. Spot gold was up 0.5 percent at $1,268.44 an ounce by 2:27 pm EDT (1827 GMT), after touching its highest since October 5 at $1,273.34.
US gold futures settled up 0.6 percent at $1,269.90. Spot prices had fallen about 7 percent over the past three weeks, as markets re-priced the likelihood of a Federal Reserve rate increase in December. "Technically, gold is well supported above $1,250 an ounce ... today's push in the $1,270 area is a positive signal ahead of the US elections and the possible Fed rate hike in December," ActivTrades chief analyst Carlo Alberto De Casa said. The metal is highly sensitive to rising rates, which lift the opportunity cost of holding non-yielding assets.
"Since (Fed Chair) Janet Yellen's speech last Friday, there is the growing view, which I think is the right view, that the Fed is going to move very slowly. The market has discounted a December rate hike," said Bill O'Neill, co-founder of LOGIC Advisors. The third and final US presidential debate between Donald Trump and Hillary Clinton starts at 9 pm ET (0100 GMT) on Wednesday. "The uncertainty that brings about is a little supportive," O'Neill added.
Fed fund futures imply a 65 percent probability of the Fed raising interest rates by December, down from 70 percent. The change was seen after US consumer prices data on Tuesday showed a moderation in underlying inflation. "The market is keeping an eye on the potential rate hike in December, which we don't expect because once we get close to the meeting, the Fed will see that key figures are not doing well enough to justify another rate hike and there will be some support for gold," said Danske Bank senior analyst Jens Pedersen. A European Central Bank policy meeting on Thursday will also be monitored by markets, Pedersen said.
The US dollar turned up slightly against a basket of six main currencies, as data on Wednesday pointed to sustained housing market strength. Spot silver was up 0.2 percent at $17.63 an ounce. Platinum rose 0.2 percent to $943 and palladium fell 0.3 percent to $636.50.