Gold Rebounds as Investors Switch Focus Back to Interest Rates

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Gold rebounded as investors assessed the outcome of the Greek crisis on the Federal Reserve’s decision to start raising interest rates. Palladium climbed for a second day to extend gains from a two-year low.

Bullion for immediate delivery rose 0.1 percent to $1,174.04 an ounce by 3:04 p.m. in Singapore, after falling 0.6 percent on Tuesday, according to Bloomberg generic pricing.

Greece on Tuesday became the first advanced economy to miss a payment on International Monetary Fund debt after bailout talks with creditors collapsed. Some investors are betting the crisis could delay U.S. Federal Reserve rate increases if it curbs growth in Europe.

“While there are many who argued that any financial contagion is expected to be limited, we are not so sure,” Bernard Aw, market strategist at IG Ltd. in Singapore, wrote in a note. “The ramifications of the Greece situation are still murky and hence complicate Fed’s monetary policy decision.”

Gold demand through exchange-traded products dropped for a third day on Tuesday, bringing the decline to 1.8 percent for the quarter to June, according to data compiled by Bloomberg.

“The risks of contagion are deemed to be relatively contained at this stage,” said Vyanne Lai, an economist at National Australia Bank Ltd. in Melbourne, referring to Greece. Gold “will be largely driven by expectations of speed and magnitudes of Fed’s tightening cycle, and its effects on the U.S. dollar,” she said by e-mail.

September Increase

A September interest rate rise is still “very much in play,” according to Federal Reserve of St. Louis President James Bullard, who said the U.S. will gain from any investor flight to safety from the Greek debt crisis. Data on Tuesday showed Americans grew more optimistic about the economy and the labor market, before a June jobs report this week.

The Bloomberg Dollar Spot Index climbed 0.2 percent after falling 1.7 percent in the second quarter. Payrolls data on July 2 will probably show employers added more than 200,000 jobs for the 15th time in 16 months, according to a Bloomberg survey. Higher rates and a stronger dollar lower the appeal of gold, which generally offers returns only through price gains.

Gold for August delivery rose 0.1 percent to $1,173 on the Comex. Bullion of 99.99 percent purity fell as much as 0.6 percent to 233.60 yuan a gram ($1,171.61 an ounce) on the Shanghai Gold Exchange, the lowest since June 8, before trading at 234.52 yuan.

Silver for immediate delivery lost 0.5 percent to $15.661 an ounce, the fifth consecutive decline. Palladium jumped 2 percent to $689.25 an ounce, extending gains from the two-year low of $665 reached on Tuesday. Platinum was 0.6 percent higher at $1,085.30 an ounce.

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