Gold hits two-week low ahead of Fed meeting but seen bouncing

[LONDON] Gold touched its lowest in more than two weeks on Monday as markets remained nervous ahead of a US central bank meeting that could raise interest rates and signal three more increases this year.

The price of gold has bounced after each of the five previous US rate hikes and is expected to again, said Ole Hansen, head of commodity strategy at Saxo Bank in Copenhagen.

"We have plenty of geopolitical risks and uncertainty, which continue to provide support, and once the rate hike's out of the way the market will return its attention to whether Washington is moving further towards protectionism and trade wars, which could lead to lower growth," he said.

Spot gold fell for a fourth straight session and was down 0.1 per cent at US$1,312.36 an ounce at 1322 GMT, having earlier dropped to US$1,307.51, its lowest since March 1.

US gold futures for April delivery were unchanged at US$1,312.30.

"We have a band of support at US$1,300-US$1,307 - there's the 100-day moving average coming in, there's the previous low and US$1,300 is the big psychological level," Hansen said.

Saxo Bank retains a bullish stance but would turn neutral if gold fell below US$1,285, he added.

The two-day Federal Open Market Committee (FOMC) meeting begins on Tuesday, with the US central bank expected to raise interest rates for the first time this year on Wednesday.

With an increase of 25 basis points seen as a done deal, one key focus is whether Fed policymakers forecast four rate hikes this year instead of the three projected at the December meeting.

"I think the overall economic recovery is good enough for the (US) central bank to consider a faster pace of normalisation of monetary policies," said Mark To, head of research at Hong Kong's Wing Fung Financial Group.

Gold is highly sensitive to rising US interest rates, which reduce its appeal compared with interest-bearing investments.

Among other precious metals, silver shed 0.4 per cent to US$16.24 an ounce.

While speculators have pulled back from US futures in both gold and silver, investors in exchange-traded funds (ETFs) have regarded the low prices as a buying opportunity, Commerzbank said.

"While silver ETFs registered inflows of roughly 84 tonnes in the past two days of trading, speculative financial investors have expanded their net short positions to almost the record high achieved two weeks ago," the German bank said in a note.

"In our opinion, market participants are positioned too pessimistically in silver, so we expect the silver price to recover." Palladium dropped 0.4 per cent to US$990.97 while platinum was up 0.5 per cent at US$947.30 after touching its lowest since Jan. 3 at US$936.50.

REUTERS