Gold holds steady as markets brace for Fed meeting

London — Gold steadied on Monday ahead of a meeting of the US Federal Reserve this week that could yield clues to the future direction of US interest rates and the dollar, key factors for precious metal prices.

Spot gold was down about 0.1% at $1,221.93/oz at 9.09am GMT compared with a one-year low of $1,211.08 hit in June. US gold futures were 0.3% lower at $1,219/oz.

A higher US currency makes dollar-denominated gold more expensive for holders of other currencies, which could subdue demand. Dollar gains since the middle of April have led to losses of about 10% for spot gold.

“Gold is still a dollar story and I see no sign of the correlation breaking down,” said Oliver Nugent, commodities strategist at ING, adding that a significant driver for dollar gains has been safe-haven flows due to trade tensions.

“Lack of investor interest is leading gold to behave like a currency, there are no safe-haven flows to gold.”

The US signalled last week that it is set to push ahead with talks with Canada and Mexico after agreeing to suspend hostilities over tariffs with Europe in a deal that may clear the way for renewed pressure on China. The US central bank’s two-day meeting which starts Tuesday is expected to keep benchmark interest rates steady after hiking in June, but investors will be looking for clues to the timing of the next rise.

Expectations are for two more rate rises this year and three next year.

“Higher US interest rates create an opportunity cost for investors,” a gold trader said, referring to the fact gold earns no interest or dividends while it costs money to insure and store.

Lack of investor interest can be seen in the holdings of the largest gold-backed exchange-traded-fund (ETF), New York’s SPDR Gold Trust which at 25.727-million ounces have tumbled about 8% since April.

Hedge funds and money managers increased their net short position in Comex gold contracts to a record high in the week to July 24, US Commodity Futures Trading Commission (CFTC) data showed on Friday. Investors added 5,001 contracts to their net short position, bringing it to 27,156 contracts, the biggest on record dating back to 2006, CFTC data showed.

Silver was up 0.1% at $15.48/oz.

Platinum fell 0.6% to $820.30/oz, while palladium gained 0.5% to $925.80.

Reuters