Gold prices steady as investors await Fed’s policy signals

Gold prices were little changed on Tuesday as the dollar held near recent highs and investors looked for more clues on the U.S. Federal Reserve’s policy direction after a widely expected interest rate pause this month.

Gold prices trade in a narrow range

  • Spot gold was down 0.1% at $1,936.89 per ounce by 0356 GMT. U.S. gold futures fell 0.2% to $1,962.70 after a U.S. holiday on Monday.
  • Gold prices traded in a narrow range of about $10 on Tuesday as markets were fairly muted with no major data releases or events.
  • The precious metal has risen about 3% since hitting a four-week low of $1,875.63 on Aug. 25, supported by a weaker dollar and lower U.S. Treasury yields.
Gold prices steady as investors await Fed’s policy signals
Gold prices steady as investors await Fed’s policy signals
  • However, gold prices faced resistance near the $1,950 level as the dollar index held just below the 104.447 level reached on Aug. 25, which was the highest since early June.
  • A stronger dollar makes gold more expensive for holders of other currencies.

Investors eye Fed’s policy outlook

  • Investors were looking for more guidance on the Fed’s policy outlook after the central bank signaled last month that it would likely start tapering its bond-buying program this year but keep interest rates near zero until at least 2024.
  • The Fed’s policy stance has been a key driver for gold prices, which tend to benefit from lower interest rates that reduce the opportunity cost of holding non-yielding bullion.
  • Investors will scan speeches from Fed officials expected to speak during the week, ahead of the Sept. 19-20 policy meeting, for any hints on the timing and pace of tapering and rate hikes.
  • According to the CME FedWatch tool, traders see a 93% chance of the Fed leaving rates unchanged at the meeting this month and about 60% chance that the rates would remain at current levels rest of the year.
  • “Much remains to be seen if rate cuts in 2024 follow and to what extent,” said Harshal Barot, a senior consultant at Metals Focus, adding that the possibility of U.S. interest rates remaining higher for longer will keep gold price rallies in check.

U.S. economic data in focus

  • Recent U.S. economic data has backed bets of a soft landing scenario as worries about inflation and recession have somewhat eased.
  • Last week, data showed that U.S. consumer spending rose moderately in July and annual inflation increased at its slowest pace in six months, suggesting that inflation had peaked.
  • On Friday, data showed that U.S. nonfarm payrolls increased by 235,000 jobs in August, well below expectations of 728,000 jobs, as hiring in the leisure and hospitality sector stalled amid a resurgence of COVID-19 infections.
  • The weak jobs report reinforced expectations that the Fed would adopt a cautious approach to tapering its stimulus and raised doubts about the strength of the U.S. economic recovery.
  • “And if the U.S. economy indeed sees a soft landing, there is potential for more downside in gold as some of the aggressive rate cut expectations in the second half of next year will be pared back,” Barot said.
  • Focus today will be on Services PMI from major economies, U.S. factory orders and EU PPI Data.

Other precious metals

  • Spot silver slipped 0.5% to $23.86 per ounce, platinum dipped 0.7% to $947.55 and palladium was flat at $1,221.66.
  • Silver and platinum have underperformed gold this year as they are more sensitive to industrial demand and economic growth prospects.
  • Palladium has also faced headwinds from supply disruptions and weaker demand from the auto sector amid a global chip shortage.

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