Commodity prices were broadly flat on Tuesday, with silver softer than gold prices and re-touching last Friday’s 2-week low at $14.30 per ounce.
“The strength Gold depend on the response of equity and currency markets to the Fed’s decision”. High-grade copper for December delivery lost 2% to end at US$2.406 a pound.
While about half of the economists in a Bloomberg survey expect a rate increase given the improvement in the USA labor market, futures traders are showing odds of 28 percent, with the chances for a year-end rise at 59 percent. Higher borrowing costs reduce bullion’s allure because it doesn’t pay interest, unlike competing assets such as bonds.
David Govett at Marex Spectron added: “Markets will be nervous, thin and jumpy with headlines and figures causing prices to move one way or the other as we countdown [to the Fed’s decision]”. It is important to point towards the fact that gold now trades below all important daily moving averages which is considered to be a bearish signal.
The most active gold contract for December delivery gained $4.4, or 0.4 percent, to settle at $1,107.70 per ounce. The gauge has rallied 5.9 per cent since falling to a 10-month low on August 25. BNP Paribas SA said gold will continue to fall against the backdrop of a strengthening dollar. “More than $US2.6 billion has been wiped from the value of gold ETPs in the past three weeks as investors await the FOMC”.
Even if there were to be a rate hike this week, the dollar could come under pressure if Fed policymakers downgrade their views on the appropriate path for interest rates in 2016, said Masashi Murata, currency strategist for Brown Brothers Harriman in Tokyo. Growth in investment and factory output missed forecasts, raising the risk that Chinese growth may slow to below 7 percent in the third quarter for the first time since the global financial crisis. The assets reached 1,508.2 tons on August. 11, the lowest since 2009.
“A non rate hike in September could give a temporary respite to gold, but prices are unlikely to breach recent highs around $1,170″, ActivTrades chief analyst Carlo Alberto de Casa said. The Fed’s benchmark rate, which banks use to lend to other institutions on overnight loans, has remained at its current level between zero and 0.25% since December, 2008.