Gold lifted by weaker dollar as market ponders pace of Fed interest-rate hikes

Gold edged higher on Wednesday, buoyed by a weaker dollar as the market looks to comments from Federal Reserve officials for hints on the pace of the central bank’s interest-rate hikes this year.

Riskier markets, however, found relief on reported progress, though measured, for U.S.-China trade talks, limiting gains for haven gold.

February gold on Comex GCG9, +0.38% rose $4.30, or 0.3%, to $1,290.20 an ounce. March silver SIH9, +0.01% meanwhile, climbed by 7.7 cents, or 0.5%, to $15.79 an ounce.

On Wednesday, Chicago Fed President Charles Evans said in a speech that the Fed is likely to “eventually” push interest rates up slightly into restrictive territory if the dark clouds over the outlook clear up. Separately, however, St. Louis Fed President James Bullard told The Wall Street Journal that the U.S. economy could be pushed into a recession if the central bank presses forward with more rate increases.

Against that backdrop, the ICE U.S. Dollar Index DXY, -0.64% was down 0.7% at 95.256. Softness in the U.S. dollar had offered a runway for gold to rise late in 2018, as moves in the U.S. unit can influence the attractiveness of those commodities to holders of other currencies.

Minutes from the Federal Open Market Committee’s meeting in December, when the central bank raised rates but lowered expectations for rate hikes in 2019, will be released at 2 p.m. Eastern Time, shortly after gold futures settle.

“The FOMC minutes will likely highlight the downside risks to the economy and the rational for downgrading the dot plot forecast from three hikes down to two for 2019,” said Edward Moya, market analyst at Oanda. “The minutes for the Dec. 19 meeting, however, may not carry much weight following Fed Chair [Jerome] Powell’s dovish spin on January 4th. Powell soothed markets by noting the Fed will be patient and flexible with monetary policy tightening.”

Meanwhile, U.S.-China trade talks concluded Wednesday after being extended to a third day. Global stocks rose, with U.S. equities pointing to a fourth straight gain for Wall Street, with Bloomberg reporting that President Donald Trump is eager to complete a deal on the expectation that it would boost battered financial markets.

Traders are waiting for complete details from the U.S.-China trade talks,” said Chintan Karnani, chief market analyst at Insignia Consultants. “Unless details of U.S.-China trade talks are known, gold will remain firm.”

Taking a look at the bigger picture, analysts at Société Générale were upbeat on the outlook for gold.

“We believe 2019 will be a turning point and would recommend investors consider increasing the gold allocation in their portfolios,” they wrote in a research note released Wednesday.

“Gold fundamentals and positioning have not been supportive in recent years, while the fact that it remains a bond proxy has been a drag,” they said. But “going forward, with U.S. real yields and the US dollar to be capped, we expect gold to break free.”

“The scarcity of safe-haven assets should allow gold to shine again,” the analysts said.

Other metals traded broadly higher, with March copper HGH9, -0.06% up 0.3% at $2.665 a pound and April platinum PLJ9, +0.39% gaining 0.7% to $827.90 an ounce.

Palladium looked to score a record settlement for a fourth session in a row. The March contract PAH9, +1.09% was up 1.2% at $1,277 an ounce—inching closer to parity with the per-ounce price for gold. The last time palladium settled higher than gold was in October 2002.

MarketWatch

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Ed Moya

Ed Moya

Senior Market Analyst at OANDA
With more than 20 years’ trading experience, Ed Moya is a market analyst with OANDA, producing up-to-the-minute fundamental analysis of geo-political events and monetary policies in the US, Europe, the Middle East and North Africa. Over the course of his career, he has worked with some of the world’s leading forex brokerages and research departments including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including BNN, CNBC, Fox Business, and Bloomberg. He is often quoted in leading print and online publications such as the Wall Street Journal and the Washington Post. He holds a BA in Economics from Rutgers University. Follow Ed on Twitter @edjmoya ‏
Ed Moya