Bullion firms on bets that Fed may review rates policy

Gold prices firmed on Tuesday as some traders bet that recent weak US economic data may prompt the Federal Reserve to rethink its rate hike trajectory, while also positioning for further cues from the minutes of the US central bank’s last meeting.

Spot gold rose 0.3% to $1,927.40 an ounce by 8.43am GMT, with trading volumes thin as a result of holiday in the US. US gold futures added 0.3% to $1,935.20/oz.

“Weaker-than-expected US economic data released on Monday, including PMIs, have supported gold. Market participants will closely track coming US job market data to see if previous US interest rate hikes will slow down the economy,” UBS analyst Giovanni Staunovo said.

Still, the minutes of the Fed’s June meeting that are due to be released on Wednesday could “sound hawkish in line with the recent testimony of Jerome Powell”, Staunovo added.

Investors see an almost 90% chance of a 25 basis-point hike in July, according to CME FedWatch tool. High rates discourage investment in zero-yield gold.

Focus this week will also be on US non-farm payrolls data, after manufacturing slumped in June.

“Right now, headwinds for gold are expectations of a further 50 bps tightening, more liquidity withdrawal and rates remaining relatively elevated for some time,” said Nicholas Frappell, global head of institutional markets at ABC Refinery.

Also on the radar are fresh developments in the US-China trade war, with Beijing restricting exports of some metals used in semiconductors, electric vehicles and hi-tech industries.

Previous flare-ups also benefited the dollar, reducing demand for gold.

Spot silver rose 0.3% to $22.9445/oz, platinum gained 1.3% to $918.40, and palladium climbed 1.3% to $1,245.02.

“The white metals remain linked to the performance of gold. That said, economic growth concerns have a bigger impact as those metals which have a higher industrial usage than gold,” Staunovo said. 

Reuters