Gold extended its rise on Wednesday, rebounding from this week’s 10-month low as the dollar eased against the euro ahead of a European Central Bank meeting and on the view that a U.S. rate rise next week was already reflected in prices.
In November, the yellow metal posted its biggest monthly fall in more than three years. The losing streak spilled into December as fears of U.S. rate rise, an increased appetite for risk and a stronger dollar all weighed on prices at a time of waning demand from top consumers, China and India.
Gold prices found solid support, however, at the $1,172 level, a chart retracement of its December-to-July rally.
Spot gold was up 0.3 percent at $1,173.32 an ounce by 2:47 p.m. EST (1947 GMT), up 0.6 percent, up from Monday’s 10-month low at $1,157.
U.S. gold futures for February delivery settled up 0.6 percent at $1,177.50. “The metal lost 8 percent during the month of November, thanks to the Fed, which is expected to increase the interest rate this month,” said Naeem Aslam, Think Markets’ chief market analyst.
“We think that the interest rate story is largely baked into the gold price, and when the Fed increases rates, we may not see much of a move,” Aslam added.
Any shift in gold prices will likely be dictated by the currency markets. The dollar edged 0.1 percent lower against the euro on Wednesday ahead of key central bank meetings.
“Today is a little more of a pause,” said Rob Haworth, senior investment strategist for U.S. Bank Wealth management in Seattle.
“I think rates moving higher is the primary headwind to gold moving into next year and the market doesn’t really get the benefit from rising inflation,” he said, referring to expectations for the Federal Reserve to raise U.S. interest rates. The Fed is expected to hike rates at its meeting next week, a move seen as negative for gold, as higher U.S. rates lift the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced.
The European Central Bank is expected to extend its quantitative easing program when it meets on Thursday, but questions remain over whether it will send a formal signal on the eventual end of that program.
Among other precious metals, silver was up 2.6 percent at $17.14 an ounce, after rising to $17.24, the highest since Nov. 14.
Palladium was down 0.7 percent at $731.50, while platinum was 0.7 percent higher at $940.80.
Source: Reuters UK