Gold holds steady as investors shrug off US rate increase

London — Gold prices were stable on Thursday, locked in a narrow range near one-and-a-half-year lows after the US Federal Reserve raised interest rates and said it plans to make four more increases by the end of next year and another in 2020.

Gold is sensitive to higher US interest rates because they tend to boost the dollar, making gold more expensive for buyers using other currencies. They also push up US bond yields, reducing the attraction of non-yielding bullion.

Investors had anticipated Wednesday’s rate rise and outlook, but the removal of the word “accommodative” from a Fed statement helped strengthen the dollar slightly and push gold lower.

The dollar rose again on Thursday as fears of a political crisis in Italy weakened the euro. “The markets appear to have largely shrugged [the Fed] off,” said Mitsubishi analyst Jonathan Butler. Gold is likely to continue to trade between $1,190 and $1,210 an ounce in the short term, as it has throughout September, he said.

“Unless physical demand substantially picks up in Asia — which it could as we get towards the end of the year — we are not likely to see any great catalyst to propel prices higher unless, of course, we see a drop back in the dollar,” said Butler.

Spot gold was flat at $1,193.90 an ounce at 11.45am GMT, still close to a 19-month low of $1,159.96 reached in August. It fell 0.6% on Wednesday. US gold futures were 0.1% down at $1,197.70 an ounce.

Gold is down more than 12% from an April high, largely because of a stronger dollar, which has been boosted by a vibrant US economy, expectations of higher interest rates and fears of a global trade war.

But prices may have hit bottom, said Commerzbank analyst Carsten Menke. “Heading into next year, the strength of the dollar should soften, adding more upside to prices [and] around the turn of the decade, the expected slowdown of the economy should revive the demand for gold as a safe haven.” 

Gold has traditionally been seen as a safe investment in times of economic or political turmoil, but this position has been usurped this year by the dollar.

On the technical side, resistance for gold was at its 50-day moving average at $1,204.50 and Fibonacci support was at $1,185.30, ScotiaMocatta analysts said.

Palladium was up 1.1% at $1,078.49 an ounce after touching an eight-month high of $1,084.10. Silver gained 0.6% to $14.37 and platinum was up 0.1% at $821.98.

Reuters