Weaker dollar props up gold

London — Gold edged higher on Wednesday, propped up by a weaker dollar, but it was unlikely to make a significant move before an expected US rate increase next week and amid trade tension.

Spot gold was up 0.1% at $1,296.96/oz at 9am GMT while US gold futures for August delivery dipped 0.1% to $1,300.90/oz.

“Investors are sitting on the fence, they only want to be involved when we break out of the range,” said Ole Hansen, head of commodity strategy at Saxo Bank in Copenhagen.

Gold was trapped between the 200-day moving average at about $1,308 and $1,286 on the downside, he said.

The case for raising US interest rates next week was bolstered on Tuesday when data showed US services sector activity accelerated in May and job openings rose to a record high in April. Gold, which is a non-interest-paying asset, could see demand take a hit from higher rates.

Once the rate decision had been taken, gold was likely to move higher, Hansen said. “There is potential for gold to follow the same pattern it’s taken after recent rate hikes: defensive before, only to rally afterwards.”

A softer greenback provided support to dollar-denominated gold after the euro rose to a 10-day high when European Central Bank (ECB) officials said an end to the bank’s bond-buying programme by the end of 2018 was plausible.

The dollar index, which measures the greenback against a basket of six major currencies, fell 0.2%.

Potential investors in gold were also waiting to see how trade tension plays out since many believe recent US tariffs are negotiating tactics, analysts said.

“Investor interest is mixed towards gold in the current environment, with geopolitical tensions attracting reduced flows and limiting the downside risk rather than propelling prices higher,” Standard Chartered said in a note on Tuesday.

Holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, fell 0.03% to 836.13 tonnes on Tuesday, the lowest since mid-March.

In other precious metals, silver gained 0.3% to $16.51/oz.

Platinum edged up 0.1% to $900.90/oz and palladium added 0.2% to $995.90/oz.

Platinum prices were set to begin a gradual recovery as the market deficit hit a four-year peak this year, a report by Thomson Reuters GFMS said on Wednesday, with industrial and autocatalyst demand inching higher while mine supply contracts.

Reuters