Weaker dollar supports gold, but risk-on trade limits gains

Bengaluru — Gold rose on Monday, helped by a weaker dollar on the expectation that the US Federal Reserve might apply brakes on its monetary tightening cycle in 2019, although an improved risk appetite limited gains for the safe-haven metal.

Meanwhile, spot palladium — which broke through $1,300/oz on Friday to hit its highest on record at $1,310 — eased slightly, but was still trading at a slight premium to gold.

Spot gold was up 0.3% at $1,288.60/oz, as of 3.06am GMT and US gold futures gained about 0.4% to $1,290.70/oz.

“The dollar is weak, aiding gold. Also, [Fed chair] Jerome Powell’s views on Friday about the future of interest rate hikes is a bullish factor for gold,” said Yuichi Ikemizu, Tokyo branch manager, ICBC Standard Bank.

Powell said on Friday that he was aware of the risks related to an economic slowdown and would be patient and flexible in policy decisions during 2019.

“Gold prices will be going higher in due time because of the Fed comments. Maybe, people have already started buying,” Ikemizu said.

The dollar index, which tracks the US currency against six major peers, fell 0.2%.

Investors had expected the Fed to stay on its tightening path after three hikes in 2018, but the ongoing trade war and recent disappointing corporate earnings have put those expectations to rest.

Gold is highly sensitive to rising interest rates, which lift the opportunity cost of holding non-yielding bullion.

“Given the uncertain financial market climate, gold should continue to flourish, and for those that have missed the boat, pullbacks could be an excellent opportunity to engage,” Stephen Innes, Asia-Pacific trading head at Oanda in Singapore, said in a note.

“But in the unlikely case that stock markets start to draw more affection from investors, gold could struggle over the near term to regain momentum and prices could slip aggressively.”

A relief rally in Asian equities triggered by the Fed’s dovish stance and strong US jobs data limited the yellow metal’s upward momentum.

An upbeat US nonfarm payrolls report on Friday showed 312,000 net new jobs were created in December, while wages rose at a brisk annual pace of 3.2%.

Meanwhile, markets were closely watching trade negotiations between Washington and Beijing starting later on Monday.

US President Donald Trump said on Friday that China’s weakening economic growth puts the US in a strong position as negotiators, increasing investors optimism for a probable trade deal between the world’s two largest economies.

Indicating investor appetite for gold, holdings in the SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, rose 0.37% to 798.25 on Thursday.

Among other precious metals, silver was up 0.5% at $15.77/oz.

Palladium was down 0.3% at $1,296.99/oz, while platinum gained 0.1% to $823.40.

Reuters