Gold edges up on weaker stocks, dollar ahead of Fed meeting

[BENGALURU] Gold inched up on Monday as Asian stocks fell and the US dollar eased ahead of a US Federal Reserve policy meeting that could give clues on the pace of interest rate hikes over the rest of the year.

With the Fed widely expected to raise interest rates at its two-day meeting that ends on Wednesday, the focus will be on any fresh hints on the pace of further tightening in the months to come and next year, and any further details on its plans for trimming its balance sheet.

The focus is on whether the Fed is looking at three or four rate hikes this year, according to Argonaut Securities analyst Helen Lau.

Higher interest rates tend to boost the dollar and bond yields, putting pressure on gold prices by increasing the opportunity cost of holding non-yielding bullion.

"With the UK event risk successfully negotiated, it would appear the market is putting more emphasis on this week's FOMC (Federal Open Market Committee) rate hike," said Jeffrey Halley, a senior market analyst with OANDA, adding that markets had priced in an almost 100 per cent chance the Fed would lift rates.

The market is also anxious to see if the Fed becomes more dovish in its outlook, he said.

Spot gold was up 0.1 per cent at US$1,266.90 an ounce as of 0813 GMT, after shedding 1 per cent in its biggest one-day percentage decline since May 18 in the previous session US gold futures for August delivery fell 0.2 per cent to US$1,269 an ounce.

In the wider markets, Asian stocks edged lower in early trade on Monday following a slide by US technology shares.

The dollar index against a basket of currencies dipped 0.1 per cent to 97.135 following its rise to a nine-day high of 97.500 on Friday.

Among other metals, spot palladium was up 0.2 per cent at US$892.50 per ounce after rising to a high of US$911.50 an ounce, just below a 16-year high hit on Friday.

"The palladium market is experiencing a short-squeeze which we believe is driven by investment demand rather than industrial demand," Julius Baer analyst Carsten Menke said in a note.

"Eventually, the weaker demand backdrop from automotive catalysts should be reflected in deteriorating sentiment and falling prices. We remain bearish and stick to our short-recommendation."

Silver was down 0.1 per cent at US$17.15 per ounce, while platinum rose 1.1 per cent to US$943.30 per ounce.

REUTERS