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Fed rate pause keeps gold near 8-month highs

Bengaluru

GOLD prices on Thursday held near eight-month highs hit in the previous session, as the dollar weakened after the US Federal Reserve paused its monetary tightening cycle, putting bullion on course for its fourth straight monthly gain.

Spot gold was up 0.1 per cent at $1,320.65 per ounce. Prices rose to their highest since May 11 at $1,323.34 on Wednesday. US gold futures were up 0.8 per cent at $1,319.70 per ounce. Spot gold has risen 3 per cent so far this month.

The Fed held US interest rates steady on Wednesday but said it would be patient in lifting borrowing costs further this year as it pointed to rising uncertainty about the economic outlook.

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"The Fed dropped a commitment to gradual rate hikes from its policy statement ... US dollar's plunge alongside treasury bond yields have burnished the relative appeal of gold," said Ilya Spivak, senior currency strategist with DailyFx.

The dollar index, which measures the greenback against a basket of currencies, fell after the Fed's cautious statement.

Gold tends to rise on expectations of lower interest rates, which reduce the opportunity cost of holding non-yielding bullion.

Meanwhile, attention turned towards the US and China high-level trade talks that began on Wednesday, aimed at digging out from their months-long trade war.

Investors are worried that Washington's criminal charges against Chinese company Huawei and its chief financial officer could hurt the talks.

If the two sides cannot reach a deal soon, Washington has threatened to more than double tariffs on Chinese goods on March 2.

"Gold is getting a double whammy from a dovish Fed and US-China trade talks," said Jeffrey Halley, senior market analyst, OANDA, adding that prices will firm around US$1,300 levels. "But, US$1,350 is going to be tough to crack and one needs more risks in the market to push gold higher."

Underscoring investor interest in gold, holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, were at their highest since June. SPDR gold holdings have climbed 4.6 per cent so far this month, the biggest monthly gain since September 2017.

The World Gold Council (WGC) said on Thursday that a surge in gold purchases by central banks to the highest since 1967 helped push global demand for the metal up 4 per cent last year.

The world consumed 4,345.1 tonnes of gold in 2018, up from 4,159.9 tonnes in 2017, the WGC said in its latest quarterly demand trends report.

Driving the increase were central banks which bought 651.5 tonnes - 74 per cent more than in 2017 and the second highest annual total on record - as countries including China and Poland joined Russia, Turkey and Kazakhstan in adding to their reserves, the WGC said.

Gold is traditionally seen as a safe investment in times of political or economic turbulence.

"Economic uncertainty, slowdown, (and the) US-China trade conflict supported investment flows," said the WGC's head of market intelligence, Alistair Hewitt.

"The flip side is that it hit some elements of the market," he said, adding that this dynamic is likely to run through 2019.

Mr Hewitt said central bank purchases would likely be elevated again this year and that demand in the two largest gold markets, China and India, would likely remain firm, with China consuming 900-1,000 tonnes and India 750-850 tonnes in 2019.

Global supply of gold grew by 1 per cent to 4,490.2 tonnes last year, the WGC said. REUTERS