Gold trades near five-month high as Fed meets on interest rates

[LONDON] Gold traded little changed near a five-month high as investors assessed the outlook for U.S. interest rates before the Federal Reserve completes a two-day meeting.

The Fed is expected to increase interest rates later in the year, which may put pressure on gold that generally offers investors returns only through price gains. The metal rose 9 per cent this year on speculation the central bank will hold off raising borrowing costs amid concerns about the global economic outlook. The Swiss central bank this month unexpectedly abandoned the franc's cap against the euro before the European Central Bank announced an asset-purchase program to spur inflation.

"It will be quite important to see what they do say because this will be the first that we've heard from the Fed since the SNB's move and the ECB's QE program was announced," Victor Thianpiriya, an analyst at Australia & New Zealand Banking Group Ltd, said by phone from Singapore, referring to quantitative easing. "There's still a lot of conjecture as to when" interest rates will increase, he said.

Bullion for immediate delivery was little changed at US$1,291.21 an ounce by 11:36am in London, according to Bloomberg generic pricing. The metal touched US$1,307.62 on Jan 22, the highest since August.

Gold for April delivery traded at US$1,292.30 on the Comex in New York. Futures trading volume was 59 per cent higher than the average for the past 100 days for this time of day, according to data compiled by Bloomberg.

The Fed will leave rates unchanged Wednesday, a Bloomberg News survey of economists showed. Chair Janet Yellen said Dec 17 the Fed is unlikely to move before end-April. The central bank has kept its target for the federal funds rate at zero to 0.25 per cent since 2008.

Holdings in bullion-backed, exchange-traded products rose 7.9 metric tons to 1,656.2 tons on Tuesday, the highest since October.

Silver for immediate delivery slipped 0.2 per cent to US$18.034 an ounce. Palladium gained 0.6 per cent to US$785.58 an ounce, while platinum was little changed at US$1,265.95 an ounce.

BLOOMBERG