Gold Price Edges Up Ahead of the Fed
New York (Dec 14) Gold prices edged higher Wednesday in London, ahead of the U.S.Federal Reserve's decision on interest rates later in the day.
The spot gold price was up 0.13% at $1,161.43 a troy ounce in midmorning trade in Europe.
The likelihood of a rate increase in the December meeting, which would be the first hike since 2015, was at 91% on Wednesday morning, according to Fed fund futures tracked by CME.
Because gold doesn't bear interest, it can struggle to compete with other investments when interest rates rise, and so the potential for tightening monetary policy is generally bearish for gold.
Gold has already seen a sharp decline in recent weeks, falling more than 5% over the last month to hit a 10-month low late last week.
However, some analysts said a December rate hike has already been priced into the gold market, and so the announcement should not actually push gold prices down further.
"It will be more interesting to see whether the Fed gives any indication of its mid-term policy, as the market expects another two rate hikes next year following today's increase," said Commerzbank AG.
Indications of swift increases to interest rates in the next year could put pressure on the metal. Meanwhile, if the Fed surprises markets by staying pat, gold prices would likely rally.
The dollar was providing little direction for the metal on Wednesday. The WSJ Dollar Index, which measures the strength of the dollar against a basket of other currencies, was moving between positive and negative territory in midmorning trading. A stronger dollar is typically bearish for the metal as it makes it more expensive for holders of other currencies.
Looking forward, the next milestone for gold prices may come in the new year, as president-elect Donald Trump takes office in the U.S.
After the election of Mr. Trump, equity markets rallied and gold slumped, as investors bought into promises to stoke the U.S. economy. But the biggest reason for gold prices to rise in the medium to long term remains the uncertainties surrounding a Trump presidency, Mr. Menke said.
"Safe-haven demand could return to the markets should the current high expectations about his policies not be met," he said.
The other precious metals were mixed. Silver was up 0.94% at $17.10 a troy ounce, platinum was up 0.27% at $938.76 a troy ounce, and palladium was down 0.29% at $728.40 a troy ounce.
Source: Nasdaq
