Gold up, but holds near 6-week low on Fed rate hike worries

[BENGALURU] Gold inched up on Thursday, but the yellow metal held near a six-week low hit in the previous session as the dollar remained firm on expectations that the US Federal Reserve may raise interest rates as early as June.

Spot gold rose 0.2 per cent to US$1,240.51 per ounce by 0245 GMT. It fell 1.5 per cent in the previous session - its worst single-day drop since Nov 23 - breaching both its 50-day and 200-day moving averages. Prices hit a low of US$1,236.01 on Wednesday, a level not seen since March 21.

US gold futures dropped 0.6 per cent to US$1,241.20 an ounce.

The US dollar index, which measures the greenback against a basket of currencies, was up 0.1 per cent on Thursday after rising 0.2 per cent on Wednesday.

"The price action in gold since mid-April has been technically bearish. The Fed has basically put the ship back on course with regard to their intentions to continue hiking rates," said Jeffrey Halley, senior market analyst at Oanda.

The US Federal Reserve kept interest rates unchanged on Wednesday, downplaying weak first-quarter economic growth while emphasising the strength of the labour market, signalling it was still on track for two more rate rises this year.

"With the safe-haven premium coming off gold, there was enough to break the camel's back. Any small rallies are going to get sold and gold is set for a deeper correction towards the $1,200 level," Mr Halley said.

Investors will now focus on Friday's monthly US nonfarm payrolls report for further clues on the Fed's likely rate hike trajectory. Economists polled by Reuters expect US employers to have added 185,000 jobs in April, up from 98,000 in March.

Higher rates would reduce demand for noninterest bearing gold and would also make the US dollar-denominated metal more expensive for buyers paying with other currencies.

"It seems like the decline (in precious metals) could continue somewhat further," INTL FCStone analyst Edward Meir said.

"However, we do expect a period of consolidation to set in fairly shortly and do not see a substantial drop below the US$1,200 level for gold anytime soon."

Spot silver rose 0.9 per cent to US$16.53, after hitting US$16.37 on Wednesday, it lowest since early January.

Platinum was up 0.9 per cent at US$900.40, after dropping to its lowest since late December. The metal fell more than 3 per cent on Wednesday.

Palladium fell 0.4 per cent to US$796, extending its losses from the previous session's nearly 2 per cent drop.

REUTERS