Commodities: Gold prices rise ahead of US Fed rate hike decision

The U.S. Federal Reserve’s Open Market Committee (FOMC) meeting began this morning and ends early Wednesday afternoon with a statement. Traders are pricing in 76 percent odds that the Fed will raise rates in their final meeting of 2015, ending a seven-year era of near-zero borrowing costs.

“Gold has held steady as the dovish statement and lower dot plot has leavened the impact of the first rate hike in nine years”, said Tai Wong, director of base and precious metals trading for BMO Capital Markets in NY. Head of Global Asset Allocation, Alain Bokobza believes the bullion will further decrease to $955 per ounce by the end of next year as the Fed is expected to increase the interest rate, making gold investment less fruitful.

The dollar recovered from an earlier six-week low against a basket of currencies after data showed underlying inflation pressures rose in the United States last month. Everything will be dependent on a strong economic recovery.

And really, gold prices look as if “they don’t know which way to go at this point”, he said, shortly after the Fed announcement. “That will be quite positive for gold”. Investors have scaled back positions in gold ahead of the Fed meeting.

The number of people holding the top gold ETF, SPDR Gold Trust, is at the lowest since September 2008.

The imminent new phase for U.S. monetary policy has convinced large futures speculators or “managed money” investors such as hedge funds to dramatically raise bearish bets on gold, dumping more than 150,000 lots or the equivalent of some 425 tonnes of gold since the beginning of November. Spot gold is trading at $1,064.20/oz, up from the previous closing price of $1,060.93/oz.

“The gold market is devoid of any funds coming in from gold-backed exchange-traded funds and jewelry demand remains fairly soft”, said INTL FCStone analyst Edward Meir. 2 percent which is $1.80 and is now down to $1,061.60 a troy ounce. February Comex gold was last up $13.00 an ounce at $1,074.50.