Gold Rises as USD Retreats but Eyes Fed Rate Hike Next Week

Gold steadied on Wednesday, supported by softness in the dollar and European shares, but investors remained cautious ahead of an anticipated Federal Reserve rate rise next week.

The U.S. central bank is widely expected to raise interest rates for the first time in nearly a decade at its next policy meeting on Dec. 15-16.

Higher rates should dent demand for non-interest-paying gold, which has already lost 9 percent of its value this year and is on track for its third year of losses.

Spot gold rose 0.3 percent to $1,077.91 an ounce by 1107 GMT. The metal is about $30 higher than a near-six-year low reached last week.

“There is not going to be any surprise at the next Fed policy meeting … everybody is expecting a rate hike,” Citi strategist David Wilson said.

“We are expecting continued downward pressure for gold next year depending on whether the market begins to price in more rate hikes or not, as the dollar is going to moderately rise.”

The dollar slipped for a second day against other major currencies on Wednesday, after climbing to a 12-1/2 year high last week.

The slide in commodity prices, particularly crude oil, is also capping gold’s upside. Crude has fallen to its lowest in nearly seven years as OPEC continues to pump near-record amounts of oil to defend market share.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza