Gold steady ahead of Fed meeting, expected US rate rise

[BENGALURU] Gold prices were steady on Tuesday as investors awaited the start of a two-day US Federal Reserve meeting where the central bank is widely expect to raise interest rates.

Signs of an uptick in inflation and continued strength in the US jobs market is expected to convince the Fed to hike rates when the meeting concludes on Wednesday. The bank will release a statement at 1800 GMT that day followed by a briefing at 1830 GMT.

While an increase in US rates is expected, signs of more rate rises in 2017 could weigh on gold as investors abandon the non-interest bearing yellow metal in order to seek higher returns in other assets.

"At this moment, a possible interest rate will not be a surprise, so any overreaction (to a hike in rates) is unlikely," said Mark To, head of research at Hong Kong's Wing Fung Financial Group.

"People will look for some clues on whether the interest rate hike cycle will develop more rapidly than expected."

In December, the Fed raised its benchmark rate for just the second time since the financial crisis of 2007-2009 and forecast three rate rises in 2017.

Spot gold was mostly unchanged at US$1,203.16 per ounce at 0324 GMT.

US gold futures were also steady at US$1,203.30 an ounce.

Investors are also focusing on Wednesday's Dutch elections. The chance of a eurosceptic party coming to power in the Netherlands is seen as small, but a strong election performance could fuel speculation of a surprise result in French presidential elections in April and May.

The uncertainty around the elections and the impact on the cohesion of the European Union may support gold prices as investor seek a safe haven asset.

"We think the Dutch election should provide some support for gold, but France should be a much bigger support," said Samson Li, an analyst with Thomson Reuters-owned metals consultancy GFMS.

Gold is likely to trade in the US$1,200 to US$1,250 per ounce range for the coming few weeks, with prices supported by uncertainty surrounding the European elections and also the lack of clarity over the policies of US President Donald Trump, Mr To said.

"But on the other hand, there is the counter balance from the interest rate hike," he added.

Spot gold still targets US$1,193 per ounce, as suggested by its wave pattern and a Fibonacci ratio analysis, according to Reuters technical analyst Wang Tao.

Meanwhile, holdings of the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose 0.83 per cent on Monday.

In other precious metals, silver was flat at US$16.94 per ounce.

Platinum and palladium were also mostly unchanged at US$936.20 per ounce and US$750.80 respectively.

REUTERS