Gold eases as slight nerves set in on Fed policy outlook

[LONDON] Gold prices eased on Friday, reflecting tension between an easier global interest rate backdrop and the chance of US monetary policy being tightened before the end of 2016.

Spot gold shed 0.5 per cent to stand at US$1,324.66 an ounce at 1011 GMT, on course for a decline of around 1 per cent for the week.

Bullion has benefited significantly - hitting its highest in two years earlier this month - as central banks from Europe to Japan opt to keep policy looser for longer, because that neutralises the opportunity cost of holding an asset with no interest rate.

But the dollar has gained ground recently on strong readings on the US labour market and inflation, which have boosted bets the Fed will raise US interest rates by year-end.

"People think the international situation is enough to keep the Federal Reserve on hold, but there's some slight nervousness," Macquarie analyst Matthew Turner said.

"The assumption that the Fed is more cautious now is surely correct as it didn't manage to do the hiking cycle it wanted, but being more cautious does not mean completely paralysed. There's a slight down cycle for gold at the moment as there has been a string of good US data," he added.

The US Federal Reserve will wait until the fourth quarter before raising interest rates, likely in December after the presidential election, according to a Reuters poll which once again showed subdued inflation expectations.

Meanwhile, the ECB on Thursday held rates at record lows as it seeks to revive growth and inflation with cheap credit to the economy. It left the door open to more policy stimulus, highlighting "great" uncertainty and abundant risks to the economic outlook.

Reuters technical analyst Wang Tao said spot gold could retest support at US$1,313 per ounce.

ANZ analyst Daniel Hynes said the market was also going through a bout of voidness post Britain's EU referendum result.

"But everything else is still very conducive for the growth of investments (in gold). Once we just watch out for any short-term positioning that we saw coming just after the referendum, we will continue to see support for gold prices."

Holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell 0.22 per cent to 963.14 tonnes on Thursday.

In other metals, palladium lost 0.7 per cent to US$677.75, having touched its highest since late October 2015 on Thursday.

Silver, which hit a near two-week low on Thursday, was down 0.6 per cent to US$19.63 an ounce, while platinum lost 0.3 per cent to US$1,095.00.

REUTERS