Gold prices inched higher on Thursday, helped by a weaker dollar and lower US bond yields, as investors waited for the nomination of a new US Federal Reserve chair and the unveiling of US tax reform legislation later in the day. The dollar weakened after the Fed's decision on Wednesday to leave interest rates unchanged, but pared losses on solid US data and a fall in sterling after the Bank of England accompanied its first interest rate rise in a decade with caution about future increases.
US 10-year Treasury yields were near two-week lows. Lower bond yields make gold, which offers no yield, more attractive to investors while a weaker dollar makes bullion cheaper for holders of other currencies. "The slightly weaker dollar is the main explanation (for gold's rise)," said Julius Baer analyst Carsten Menke. Spot gold was up 0.2 percent at $1,276.38 an ounce at 1255 GMT after touching $1,281.43, the highest since Oct. 26.
US gold futures were flat at $1,277.10 an ounce. Investor focus was moving to the choice of the next Fed chair, said Menke. US President Donald Trump is expected on Thursday to nominate Fed Governor Jerome Powell to replace Janet Yellen as leader of the central bank. Powell is seen as less likely to push for rapid interest rate rises than other candidates.
Gold is sensitive to rising interest rates because they push up bond yields and tend to boost the dollar. "If he (Trump) were to pick Fed Governor Powell as expected, gold would likely make slight gains," said analysts at Commerzbank. But Menke predicted prices could fall to $1,200 by the end of the year. "We think further rate rises are on the cards, which should support the US dollar and yields," he said.
Markets are pricing a 97 percent likelihood of a rate increase in December, according the CME Fedwatch tool, but are less certain of the pace of rises next year. That pace could be accelerated if tax reform legislation to be unveiled by Republicans in the House of Representatives on Thursday were enacted and succeeded in speeding economic growth.
On the technical side, gold was struggling to break above its 100-day moving average at $1,275.60 and indicators suggested prices will fall, analysts said. "Gold continues to weigh on the downside and still implies a test of the current October low and the 200-day moving average at $1,260.55/$1,260.89," said Commerzbank technical analysts. In other precious metals, silver was flat at $17.13 an ounce. Platinum was down 0.2 percent to $929.30 an ounce and palladium was 0.2 percent lower at $1,000.
Comments
Comments are closed.