Gold benefits from lower dollar

Dhaka,  Thu,  08 December 2016
Published : 19 Oct 2016, 20:56:04

Gold benefits from lower dollar

LONDON, Oct 19 (Reuters): Gold rose on Wednesday as the dollar weakened and Treasury yields ticked lower amid uncertainty around the timing of a US rate increase.

Spot gold gained 0.6 per cent to $1,270.11 an ounce at 0944 GMT. US gold futures rose $9 to $1,271.80 an ounce.

Spot prices had shed about 7 per cent over the past three weeks, as markets re-priced the likelihood of a Federal Reserve's rate hike in December.

The metal is highly sensitive to rising rates, which lift the opportunity cost of holding non-yielding assets.

However, a retreat in the dollar, which fell 0.3 per cent against a basket of six main currencies after US consumer prices showed a moderation in underlying inflation, prompted markets to trim bets on a December Federal Reserve rate hike.

Fed fund futures imply around a 65 per cent probability of the Federal Reserve raising interest rates by December, down from 70 per cent before the CPI data.

"The market is keeping an eye on the potential rate hike in December, which we don't expect because once we get close to the meeting, the Fed will see that key figures are not doing well enough to justify another rate hike and there will be some support for gold," said Danske Bank senior analyst Jens Pedersen. A European Central Bank's policy meeting on Thursday will also be monitored by markets, Pedersen said.

The metal was also benefiting from lower European shares, indicating waning investor appetite for risk.

"We remain relatively negative on gold short term despite a stronger start to the week," INTL FCStone said in a note.
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