Gold erases losses after US rate hike expectations ease

[NEW YORK] Gold steadied on Monday, recovering from earlier weakness after dovish comments from US Federal Reserve policymakers lowered expectations for an interest rate hike this month, and the US dollar fell.

US interest rate futures prices rose, diminishing the implied probability of a rate hike by the US central bank next week, after Fed Governor Lael Brainard warned against a rush to raise interest rates.

Ms Brainard's comments came on the same day that Minneapolis Fed President Neel Kashkari said low inflation means there is no pressure to aggressively raise rates while Atlanta Fed President Dennis Lockhart said current economic conditions warrant a "serious discussion" of whether to raise rates next week.

The Fed will have a two-day meeting next week.

Spot gold was up 0.05 per cent at US$1,328.32 an ounce by 3:12pm EDT (1912 GMT), with US gold futures settling down 0.7 per cent at US$1,325.60 per ounce.

US stock prices rose after Fed policymakers expressed caution about the need to raise US interest rates, sharply cutting into losses in European equities.

"Her comments clearly were on the dovish side and gold did turn from its lowest levels," said Bill O'Neill, co-founder of LOGIC Advisors, referring to Ms Brainard.

"Everything has turned toward the idea that now there's not going to be a rate hike (in September). The emotion of it day-to-day is extremely high."

The change in market sentiment followed Boston Fed President Eric Rosengren's hawkish comments on Friday, when the chances of a rate rise in September were seen at 30 per cent, up from 24 per cent before his comments.

"We retain our call for the next hike to be in December, with Brainard a potential dissenter when that comes," said Avery Shenfield, managing director and chief economist for CIBC Capital Markets.

Hedge funds and money managers increased their net long position in Comex gold contracts to a nine-week high in the week to Sept 6 and also raised a bullish stance in silver, US Commodity Futures Trading Commission data showed on Friday.

SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, said its holdings fell 1.12 per cent to 939.94 tonnes on Friday.

Silver rose 0.5 per cent to US$19.13 an ounce, having touched its lowest since Sept 1 at US$18.69.

Platinum fell 0.7 per cent to US$1,050.10 an ounce, after falling to US$1,033.45, the lowest since July 1.

Palladium was down 1.7 per cent at US$663.22, having tapped US$650.15, the lowest since July 20.

REUTERS