Gold extends gains in European trade

04 May, 2018

Gold prices gained on Thursday after the US central bank reassured investors that increases to interest rates would be gradual, with geopolitical uncertainties also providing support. Spot gold rose for a second session, firming by 0.8 percent to $1,315.01 an ounce by 1400 GMT, while US gold futures for June delivery added 0.8 percent to $1,316.60.
The US Federal Reserve said inflation on a 12-month basis was "expected to run near the committee's symmetric 2 percent objective". "Yesterday's FOMC meeting didn't spark much fireworks, but it eased concerns over whether the Fed was going to stick to its gradual tightening policy, which I believe they are," said Ole Hansen, head of commodity strategy at Saxo Bank in Copenhagen.
"The key change is they added the word 'symmetric', which was taken as a sign that they would allow inflation to overshoot, which is positive for gold." Gold is highly sensitive to rising US interest rates because it becomes less attractive compared with interest-bearing assets.
Julius Baer economists expect the Fed to shift its guidance to four rate hikes this year, from three, which will weigh on gold, said Carsten Menke, commodities analyst at the Swiss bank. "Rising rates and a temporarily stronger dollar should bring sufficient headwinds to push prices below $1,300 over the coming months," he added.
Uncertainties were providing a supportive background for bullion, including US-China trade talks and the potential US withdrawal from the Iranian nuclear accord. "Safe-haven buying has been absent of late ... But there have been some signals for the past few days that the (US-China) negotiations won't be as smooth as expected. That would definitely be a focus, particularly now we have got past the FOMC meeting," said ANZ analyst Daniel Hynes.
Meanwhile, gold demand has made its weakest start to a year since 2008, the World Gold Council said on Thursday, with stagnant prices and the threat of rising interest rates leading investors to seek better returns elsewhere. Among other precious metals, spot silver rose 1 percent to $16.51 an ounce, platinum climbed by 1.2 percent to $900.50 and palladium was up 0.9 percent at $968.

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