Gold struggles on firmer dollar, Fed rate hike fears

[SINGAPORE] Gold was hovering close to its lowest in nearly two weeks on Monday, hurt by a stronger dollar and fears the Federal Reserve could raise US interest rates this year.

Spot gold eased 0.1 per cent to US$1,162.25 an ounce by 0035 GMT.

On Friday, the metal had initially risen one per cent after China cut interest rates for the sixth time in less than a year.

But gold quickly gave back those gains, dropping to US$1,158.77, its lowest since Oct 13, as the dollar rose to its highest in 2-1/2 months on diverging monetary policies between the Federal Reserve and some of the other major central banks.

The Fed is close to raising rates for the first time in nearly a decade, though the exact timing is unclear.

Investors initially bet the US central bank would be compelled to delay raising rates given the fragility of the global economy, but buying soon evaporated on the view that the Chinese stimulus and upbeat US data made a Fed rate hike more likely this year.

Higher rates could dent the appeal of non-interest-yielding bullion.

The Fed holds a policy meeting later this week. Though it is not expected to hike rates at this week's meeting, investors will be watching for clues on the Fed's take on the global economy and whether the central bank would raise rates at its December meeting.

SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, said its holdings fell 0.26 per cent to 695.54 tonnes on Friday.

Hedge funds and money managers raised their bullish bets in COMEX gold and silver in the week to Oct 20, Commodity Futures Trading Commission data showed on Friday.

A programme to attract gold owned by households into a bank deposit scheme to monetise the precious metal could be ready in weeks, Prime Minister Narendra Modi said on Sunday, a step aimed at cutting expensive imports.

REUTERS