Gold Futures Swing Between Gains and Losses as Traders Brace for FOMC

San Francisco (Dec 12)  Gold futures were range bound on Monday, swinging between slight gains and losses as traders adjusted their positions ahead of the US Federal Reserve’s two-day policy setting meeting at which a rate hike is widely expected. The Fed funds futures market shows there is a 100% chance the Fed will raise US interest rates this week.

Gold futures have retreated for five-straight weeks as investors anticipated a rate hike at the conclusion of the Dec.13-14 meeting. Higher interest rates are negative for gold because as rates rise gold has increased competition from yield-baring assets for investors’ interest. Higher rates are also US dollar supportive, and the ensuing rise in the US dollar if the Fed hikes rates will add further pressure to dollar-denominated gold. The ICE US Dollar Index was slightly lower on Monday, which added some support to gold, but the US dollar’s value is hovering near multi-year highs.

The recent rally in US equities is also denting demand for gold. The key stock market indexes closed at record highs on Friday, and on Monday they were steady. As equities rally investors are drawn into the riskier assets and this is a negative for safe haven investments such as gold. Meanwhile, another negative for gold US Treasury yields, were higher on Monday. Yields on 10-year US Treasuries climbed to their highest level since September 2014 early in the session.

At last check, gold futures were up 0.3% at $1,165 per ounce. On Friday, gold futures closed at a 10-month low. While gold could see an immediate tilt lower if the Fed hikes rates, the losses should stabilize with a rate hike already largely priced into the commodity’s value.

SOURCE: EconomicCalendar