Gold picks up as dollar stumbles ahead of Fed speech

London — Gold prices rose on Friday as the dollar came under pressure ahead of a speech from the US Federal Reserve chair, which could yield clues to the direction of US monetary policy.

Spot gold was up 0.6% at $1,191.41/oz by 9.55am GMT, about 3% higher than last week’s 2018 low below $1,160. US gold futures were up 0.3% at $1,197.70.

Growing US political uncertainty, reinforced by the legal woes of two of US President Donald Trump’s former advisers this week, is keeping the dollar under pressure despite tighter US monetary policy, analysts say.

A falling US currency makes dollar-denominated gold cheaper for holders of other currencies, which could boost demand and prices.

“The dollar is behind the rebound in gold, but it is still locked between $1,180 and $1,200, waiting for clear direction,” said ActivTrades’ chief analyst Carlo Alberto De Casa.

“Investors are still looking for alternative safe assets to gold and the main downtrend appears unchanged.”

Investors have in recent months sought safety from the US-China trade dispute in US treasury bonds, which also entails buying dollars.

Fed chairman Jerome Powell is to speak at an annual meeting of central bankers in Jackson Hole, Wyoming, later on Friday.

A Reuters survey published on Thursday showed analysts expecting US rates to rise twice more in 2018 and twice in 2019. The Fed next meets on September 25-26.

Higher rates raise the opportunity cost of holding gold, which earns nothing and costs to store and insure.

“Investor appetite for gold has been in the doldrums in recent months. Rate hikes, low inflation, rising equity markets and a strong dollar have significantly diminished the appeal of gold,” ANZ analysts said in a note.

“The fall in gold prices could invigorate a pickup in physical demand. Overall we see gold prices stabilising at current levels, with the probability of a short-covering rally increasing substantially.”

Data on Comex gold short positions held by speculators will be updated on Friday by the US Commodity Futures Trading Commission (CFTC).

Last week’s data showed hedge funds and money managers raising their net short position for the sixth consecutive week to another record in the week to August 14.

Investors shunning gold can also be seen in the holdings of the largest gold-backed exchange-traded-fund (ETF), New York’s SPDR Gold Trust. At 24.67-million ounces, holdings have fallen by about 12% since late April.

Spot silver was up 1.1% at $14.62/oz.

Platinum gained 1.2% to $784.50 and palladium rose 1.1% to $925.

Reuters