Prices of gold and the SPDR Gold Trust (ETF) (NYSEARCA:GLD) held mostly steady in Asia but were declining in early hours in Europe on Thursday as well as the US premarket. Trading in gold is being influenced by speculations over the likelihood by the Federal Reserve to raise interest rate at its policy meeting beginning Sept. 20.
Gold for December delivery was steady at $1,326.05 a troy ounce in Asia. In European trading, gold was last seen down 0.30% after earlier hitting a session trough of $1,321.95.
A day earlier, gold prices rose 0.2% to $1,326.10 in the U.S., with the lift coming from diminishing hopes of a near-term rate increase and a weaker U.S. dollar.
Rate review sentiments
Gold is of course sensitive to movements in interest rates. When rates go up, traders turn to yield-bearing assets such as bonds and riskier investments such as equities instead of gold and other static assets. As Fed policymakers meet, the only thing that has been clear is lack of clarity. Officials of the central bank are divided on when is the right time to hike rates. While some are of the view that maintaining low interest rates will overheat the U.S. economy, others have cautioned that the quality of economic data coming out of the U.S. is not yet compelling enough to support a rate hike.
Fed officials have entered a period of silence ahead of the two-day policy meeting.
“We have some peace and quiet until the 21st. We’re no longer pricing in the rate hike in September. But because the specter of higher rates has not gone away, the rally is muted,” said George Gero of RBC Wealth Management about the period of silence by Fed officials.
The impact of the greenback on gold
Though a weaker dollar helped lift gold prices overnight in the U.S., the greenback can be seen gaining ground against several foreign rivals. In early Thursday trading in Europe, EURUSD was down 0.21% and USDJPY up 0.03. GBPUSD was sliding 0.26%, while AUDUSD was easing 0.17%. Gold tends to lose its appeal among foreign buyers when the dollar is strong.