Gold prices firm ahead of likely Fed rate cut, weak markets lend support

Gold firmed on Wednesday as a possible delay in U.S.-China trade deal stalled a rally in equities, while investors shifted focus to a U.S. central bank meeting later in the day where it is expected to cut interest rates.

Spot gold rose 0.1 percent to $1,488.63 per ounce, as of 0417 GMT. U.S. gold futures were little changed at $1,490.80.

“We seem to be at a bit of an equilibrium around here, stuck between $1,480 and $1,520. If the Fed (U.S. Federal Reserve) is more dovish in their outlook, it could be enough to drive gold higher,” said OANDA analyst Jeffrey Halley.

“However, if the Fed holds rates, it would be negative for gold because that would probably see treasury yields move higher again as well, which reduces gold’s appeal as an investment asset.”

Investors expect the Fed to lower interest rates by 0.25 percentage point for a third time this year, according to CME Group’s FedWatch tool.

However, only about a 30 percent chance of another cut in December has been priced in, compared with about 70 percent earlier this month.

Muted movement in Asian equities on Wednesday also aided gold, with MSCI’s broadest index of Asia-Pacific shares outside Japan down 0.16 percent from Tuesday’s three-month high.

Markets had erased gains after Reuters reported a U.S. administration official said an interim trade agreement between Washington and Beijing might not be completed in time for signing in Chile next month as expected.

But the official added that it did not mean the accord was falling apart, which helped limit the damage to overall market sentiment.

The over 15-month long trade spat between the world’s two largest economies has roiled financial markets around the globe, making them sensitive to the slightest development in trade talks.

Fears of a possible global recession and economic slowdown also lent support to bullion. Data released on Tuesday showed that U.S. consumer confidence fell for a third straight month in October amid household concerns about the short-term outlook for business conditions and job prospects.

Across the Atlantic Ocean, Britain is set to hold a December election after Prime Minister Boris Johnson won approval from parliament on Tuesday for an early ballot aimed at breaking the Brexit deadlock.

“Positioning (in gold) has been consolidating along with prices over the past couple months… this appears consistent with continuing concerns about the market becoming overcrowded amid an underlying bullish consensus,” UBS analysts said in a research note.

Other precious metals were subdued, with silver down 0.1 percent at $17.78 per ounce, slipping for a third straight session, and platinum unchanged at $920.24. Meanwhile palladium inched 0.3 percent higher to $1,786.34 an ounce.

source: Reuters