Gold steadies as investors bet against Fed hike

LONDON-Gold prices edged lower in London ahead of much-anticipated monetary policy meetings from the U.S. Federal Reserve and the Bank of Japan.8301 12.79 % .

Gold has given up some gains made in the first half of the year as investors debate the likely outlook for policy from the world’s central banks, with higher rates bad news for the metal. It is expected to keep benchmark rates on hold but could give a clear signal of rises to come, possibly in December.

Gold is highly sensitive to rising USA interest rates, which increase the opportunity cost of holding non-yielding bullion, while boosting the United States dollar, in which it is priced. In China, bullion of 99.99 percent purity declined 0.5 percent to 283.43 yuan a gram ($1,321.74 an ounce) on the Shanghai Gold Exchange.

“The dollar overall is down a little, which is positive for precious metals and for gold in particular”.

Spot gold was up 0.1 percent at $1,314.54 an ounce by 3:02 p.m. EDT (1902 GMT), while US gold futures were little changed, having settled up 0.03 percent at $1,318.20 per ounce. “Economic data has not been too good, so they do not need to act immediately”, said Quantitative Commodity Research analyst Peter Fertig. But higher rates would increase the opportunity cost of holding gold that yields nothing.

Also worrying for gold bulls is the rise in real yields, such as those earned on USA inflation-linked bonds, making it harder to justify holding gold.

Most investors expect the central bank to put off raising rates, which would keep gold as an attractive asset to buy.

“Indeed, the prices of all metals have now fallen below their 50-day moving averages, albeit still trading above their 200-day moving averages”.

Silver’s surge is following gold as prices are expected to be sustained at higher levels, if the rate increase is pushed to the end of the year, Mr Lennox said.

But offsetting that was data from the U.S. Commodity Futures Trading Commission showing hedge funds and money managers cutting their net long positions in COMEX gold contracts in the week to September 13.

Bullion for immediate delivery rose as much as 0.5 per cent to US$1,317.17 an ounce, before trading at US$1,315.19 at 11:24am in Singapore, according to Bloomberg generic pricing.

Gold for December delivery on the Comex division of the New York Mercantile Exchange tacked on $9.85, or 0.75%, to trade at $1,320.05 a troy ounce by 3:59AM ET (07:59GMT).