Gold Gains as Markets Await Fed Cues

Low interest rates and a softer dollar would be good news for commodities like gold

LONDON—Gold prices were higher on the London spot market Wednesday, ahead of astatement from the Federal Reserve that will likely shed light on its position on U.S. interest rates.

Spot gold was trading up 0.5% at $1,171 a troy ounce in morning European trade, having hit a three-day high earlier in the session at $1,173 an ounce.

The two-day Federal Open Market Committee meeting concludes later Wednesday, with the market expecting signs of dovishness in the bank’s subsequent statement.

After keeping rates unchanged at its meeting in September, Fed officials indicated they still expected to raise rates before year-end. This time, however, market participants see a rise in rates as an unlikely outcome of the meeting.

“Current market pricing suggests the odds of an October Fed hike are remote (4%), with around a one-in-three chance of a hike before year-end,” said an ANZ report. The next Fed policy meeting takes place in December.

As gold doesn’t offer interest, the metal finds it easier to compete with assets that do, such as Treasurys, when interest rates are pinned near zero.

Keeping interest rates low would also likely soften the dollar, which would be good news for dollar-denominated commodities like gold, as it makes them cheaper to buy for those holding stronger currencies.

“Gold is set to remain under pressure as Fed uncertainty continues to weigh on the sentiment,” said GFMS in its third-quarter gold survey.Looking ahead, research group GFMS said it forecasts gold to average $1,100 an ounce in the fourth quarter, due to a weak investment picture and continued uncertainty on U.S. interest rates.

All the other precious metals were higher midweek. Spot silver was up 0.7% at $15.956 an ounce, spot platinum was up 1% at $995.40 an ounce and spot palladium was up 0.5% at $678 an ounce.

Source: http://www.wsj.com/articles/gold-gains-as-markets-await-fed-cues-1446030517