Gold Bounces From 10-Month Low Before Fed Reserve Rate Decision

  • U.S. seen boosting interest rates for the first time this year
  • Metal is worst commodity performer after sugar this quarter

Why Fed Rate Hike Is a Near Certainty

Gold bounced from its lowest close in 10 months as traders hedge against any potential surprise from the U.S. Federal Reserve’s meeting where policy makers are expected to increase interest rates for the first time this year.

Over the past month, the metal has tumbled as traders price in the odds of a rate hike, reducing the appeal of assets that don’t pay yields or dividend. Donald Trump’s election to the U.S. presidency also helped spur the sell-off as his transition team plans infrastructure spending of as much as $1 trillion, bolstering the growth outlook and spurring the rally in U.S. equities to records.

Gold futures rose 0.4 percent to settle at $1,163.70 an ounce at 1:36 p.m. on the Comex in New York. The price closed at $1,159 on Tuesday, the lowest since Feb. 5. Traders are betting there’s a 100 percent chance that the Fed will boost borrowing costs Wednesday afternoon, according to Fed funds futures rate.

“It’s the typical Fed day uncertainty” that’s causing the slight uptick in prices, James McDonald, chief executive officer of Index Strategy Advisors, which manages $53 million, said in a telephone interview.

While investors will be watching for Fed Chair Janet Yellen’s comments on future monetary policy, they shouldn’t expect much given the uncertainty over Trump’s policies, Robin Bhar, an analyst at Societe Generale SA, said by telephone. “Yellen’s hands are tied and will be until there’s more policy certainty from the incoming president,” he said.

Gold has been battered this quarter, with only sugar showing worse returns among the raw materials on the Bloomberg Commodity Index. The S&P 500 Index and Dow Jones Industrial Average stock benchmarks have been trading at all-time highs this month, reducing demand for the precious metal.

A measure of the dollar against its overseas peers is near the highest in more than a decade, making gold dearer for those holding other currencies. Holdings of the metal in exchange-traded funds fell for a 23rd day to 1,830.6 metric tons on Tuesday, the lowest since June, data compiled by Bloomberg show. That’s the longest slide since May 2013.

In other metals news:

  • Silver futures also advanced on the Comex in New York, while platinum and palladium gained on the New York Mercantile Exchange.
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