Gold struggles ahead of Fed meet on U.S. rate hike views

Investors have been cutting gold positions in anticipation of a rate rise and the metal has fallen about 10 per cent so far in 2015.

The central bank’s Federal Open Market Committee (FOMC) is expected to announce the increase at the end of its two-day policy meeting on Wednesday, but has hinted that it intends to raise rates only gradually from there.

“A rate hike would be a positive sign because it shows the Fed believes the USA economy and the global economy is in good health and that there will be a good outcome for economic conditions”.

In its last policy meeting of the year on December 15-16, the Fed is seen raising rates by a quarter of a per centage point.

Gold is headed for a third annual decline as the prospect of the first increase in United States borrowing costs in nearly a decade boosts the dollar, hurting bullion’s allure.

“The implications for higher rates are ostensibly gold-bearish and the market has been dropping for many weeks, in expectation of a rate rise”, James Steel, HSBC analyst, said.

Spot gold was trading up 0.3 per cent at $US1,063.41 a troy ounce in morning European trade, moving within a tight $US8 range.

Elsewhere in metals trading, copper fell from a two-week high as a broadly stronger USA dollar reduced the appeal of the red metal, but losses were limited following the release of better than expected Chinese economic data over the weekend.

Among other precious metals, silver was up 0.3 percent at $13.76 an ounce, steadying after a six-day losing streak. Gold lost 0.8% last week.

Palladium rose 1.2 percent to $548.45 an ounce.

“This could leave gold prices exposed to further downside, even as fund short positioning remains highly stretched”.

“Until the Fed reveals its decisions regarding rates we suspect the financial markets will be volatile and that volatility will seep into gold, with the bullion market more likely to trade lower”, Steel said. Assets in the top gold ETF, SPDR Gold Trust, are at their lowest since September 2008 while physical demand from the world’s biggest consumer India was also lacking, with gold prices there swinging to a discount.