OUT OF STEAM: Gold is off to its best start in six years but prices are expected to fall. Picture: BLOOMBERG
OUT OF STEAM: Gold is off to its best start in six years but prices are expected to fall. Picture: BLOOMBERG

London — Gold prices remained locked just below $1,300 an ounce on Tuesday as investors waited for clues on the pace of US interest-rate rises from a US Federal Reserve meeting this week.

A Fed statement and press conference expected from 6pm GMT on Wednesday could push gold out of the tight range of about $1,290 to $1,305 in which it has been trapped since mid-May. Gold is highly sensitive to interest rates because higher rates push up bond yields, making non-yielding gold less attractive, and tend to strengthen the dollar, increasing the cost of gold for buyers using other currencies.

Investors expect the Fed to increase rates on Wednesday but will be looking for hints at future policy. A more aggressive stance on monetary tightening would hurt gold. "We are waiting for the Federal Open Market Committee (FOMC)," said Saxo Bank analyst Ole Hansen, referring to the Fed’s policy committee.

Gold prices have tended to fall ahead of previous rate rises but recover afterwards, he said. "We’re still erring towards the potential for a move higher here."

Spot gold was down 0.1% at $1,298.15 an ounce at 10.21am GMT, while US gold futures for August delivery were 0.1% lower at $1,302 an ounce. The dollar and US bond yields were also largely flat.

Adding to the wait-and-see mood for gold were expectations that the European Central Bank (ECB) will signal a winding down of its vast bond-buying programme at a meeting on Thursday. This would likely help gold by boosting the euro and weakening the dollar. Japan’s central bank will also meet on June 14-15.

Gold did not react strongly to a pledge by the leaders of the US and North Korea to work towards complete de-nuclearisation of the Korean peninsula. The joint statement signed at the end of a summit in Singapore gave few details on how this goal would be achieved. Gold is traditionally used as a safe place to invest money during times of uncertainty, and growing tensions over Korea have added to demand.

In other precious metals, silver was down 0.2% at $16.86 an ounce after hitting a seven-week high of $16.95 on Monday. Platinum was 0.2% higher at $905.80 an ounce, and palladium was down 0.3% at $1,019 an ounce.