Gold rises but hawkish Fed stance puts the brakes on

Bengaluru — Gold prices edged higher on Tuesday as the dollar dipped, though lingering worries about further rate hikes from the US Federal Reserve (Fed) kept the nonyielding bullion’s gains in check.

Spot gold was up 0.3% at $1,792.75/oz, as of 0406 GMT. US gold futures rose 0.2% to $1,801.40.

The dollar index inched 0.4% lower as the yen surged after the Bank of Japan said it would review its yield curve control policy. A weaker dollar makes gold more attractive to overseas buyers.

The BOJ’s announcement surprised markets during thin trade, and as a result gold has sucked up safe-haven flows after the dollar weakened, said Matt Simpson, a senior market analyst at City Index.

“I think the prospects of a higher terminal Fed rate could prevent gold enjoying a runaway rally next year.”

Last week, Fed chair Jerome Powell said the US central bank will deliver more interest rate hikes next year to curb inflation. Other major central banks have highlighted a similar hawkish stance. Though gold is seen as an inflation hedge, higher interest rates increase the opportunity cost of holding the asset.

The European Central Bank will not revise its midterm price stability goal as that would undermine credibility, vice-president Luis de Guindos said, adding that it was determined to keep raising interest rates.

Investors also took stock of news that in top bullion consumer China, Covid-19 is sweeping through trading floors in Beijing and spreading fast in the financial hub of Shanghai. The country reported five new Covid-19 deaths for December 19.

“If China brings back restrictions and if that were to happen over the holiday period, it is the perfect catalyst for large moves [in gold] to the downside,” Simpson added.

Spot silver edged 0.5% higher at $23.06, platinum rose 0.3% to $982.51 and palladium was up 0.6% at $1,679.58.

Reuters