Gold rises as dollar feels pressure of a dovish Fed

Bengalur — Gold prices rose on Monday as the dollar fell on the expectation that the US Federal Reserve will not raise rates this year and as Asian markets dropped after lacklustre China data reflected a slowdown in the world’s second-largest economy.

Gold tends to gain on the expectation of lower interest rates, as they reduce the opportunity cost of holding a nonyielding bullion and trims the demand for US dollar, making the metal less expensive for holders in other currencies.

Spot gold was up 0.3% at $1,291.42/oz, as of 4.11am GMT.

US gold futures were up 0.2% at $1,291.40/oz.

The weakness in equities and US dollar appear to be a bonding providing support for gold, said Michael McCarthy, chief strategist, CMC Markets and Stockbroking.

“There is a key resistance between $1,290 and $1,310. Gold will need to do substantial work to rise above this level as generally we see traders shorting into it.”

The US central bank had the ability to be patient on monetary policy given stable price measures, US Federal Reserve chair Jerome Powell said last week, and he downplayed predictions from policymakers suggesting interest rates would be raised twice more in 2019.

“The market feels there is a shift in the Fed’s stance and it is more accommodative and we are seeing the dollar weakening for several sessions,” McCarthy said.

Meanwhile, Asian shares tumbled on Monday after a shock contraction in Chinese December exports, which fell 4.4% from a year earlier, the biggest monthly drop in two years, official data showed on Monday.

Spot gold has gained more than 11% since hitting a one-and-a-half-year low in mid-August at $1,159.96 due to volatile stock markets and a weaker dollar.

“The precious metals sectors continues to benefit from a weaker US dollar and periodic weakness in equity markets,” ANZ said in a research note.

“The geopolitical risks have also started to induce some safe-haven buying. Investors are becoming increasingly worried about the Brexit negotiations. At the same time, there appears no end in sight for the US government shutdown,” ANZ noted added.

A partial US government shutdown over President Donald Trump’s demand for $5.7bn to build a wall along the US-Mexico border entered its 24th day on Monday, with no end in sight.

Spot gold remains neutral in a range of $1,279/oz-$1,299/oz, and an escape could suggest a direction, according to Reuters technical analyst Wang Tao.

Among other precious metals, silver inched down 0.1% to $15.58/oz.

Palladium fell 0.6% to $1,310.45/oz. It hit a record high at $1,342.43 last week.

Platinum slipped 0.5% to $806.24.