Gold Prices Stuck in Holding Pattern
December 8, 2015 (Source: WSJ) — Gold prices are fluctuating between gains and losses on Tuesday morning, as traders wait out the remaining days before an expected rate increase by the Federal Reserve.
Spot gold was down 0.01% at $1,072 a troy ounce in morning European trade.
“With little in the way of figures to wait for I suspect we will see more of the usual thin and nervous conditions, with the market pretty much bang in the middle of the range,” said David Govett, head of precious metals at Marex Spectron.
The U.S. Federal Reserve next week is expected to begin long-awaited interest rate increases in the central bank’s final meeting of the year. A speech by the Atlanta Federal Reserve President Dennis Lockhart on Monday, in which he said he is ready for “lift off”, only solidified investors’ expectations that the hike was on its way.
A decision to raise interest rates would be bearish for gold, which doesn’t bear interest, making it potentially less attractive than yield-bearing investments, including Treasurys.
As a result, the wait for the rate increase has dominated moves in the gold price for months, outweighing other price signals including changes in physical demand from major buyers and political events that spurred only short-term safe haven buying.
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Some analysts believe that gold prices may have fully baked in a shift in U.S. monetary policy, so could start move independently of news about the Fed.
“What we think is investors are already factoring in a rate increase by the Fed next week,” said Simona Gambarini, commodities economist at Capital Economics in London.
Fluctuations in the dollar have also rubbed off on gold. As the greenback rises on expectations that the economy is strengthening, the metal becomes more expensive for investors with other currencies. The WSJ Dollar Index, which measures the dollar against a basket of other currencies, is up 0.05% on Tuesday.
Ms. Gambari believes there will few surprises for the market for the rest of the year. “The real surprise would be if the Fed doesn’t hike rates,” she said.
With the gold market focused on rates and the dollar, demand for this precious metal has had little impact on its price.
Sinking gold prices appears to have helped physical demand in China, notes Commerzbank, where the Chinese central bank picked up gold buying to diversify its currency reserves. The PBOC bought around 21 metric tons of gold in November, the bank notes, the largest amount since China began publishing figures in June.
Other precious metals were mixed on Tuesday morning, either slightly down or up in trading that underscores how these resources are drifting in current sessions. Palladium was down 0.17% at $553.50 an ounce, but platinum was up 0.54% at $862.04 an ounce and silver was flat at $14.27 an ounce.
Raj Shah has professional experience working for over a half a dozen years at financial firms such as Merrill Lynch and First Allied Securities Inc., ... <Read more about Raj Shah>