Gold prices stabilize as the dollar weakens ahead of Fed decision

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December 17, 2018 11:21am NYSE:GDX NYSE:GLD

Gold Price

From Myra P. Saefong & Rachel Koning Beals: Gold prices climbed Monday as a leading dollar index edged lower, with both markets largely marking time ahead of key central-bank policy decisions this week and uncertainty around concrete trade developments between the U.S. and China.

Gold for February delivery on Comex GCG9, +0.39%  was up $4.60, or 0.4%, at $1,246 an ounce. The contract settled Friday at $1,241.40–the lowest finish since Dec. 3, according to FactSet data. It ended down 0.9% for last week. The SPDR Gold Shares ETF GLD, +0.38%  traded up 0.4% in Monday dealings, adding to it’s 1.7% gain month to date.

Gold is seeing some unwinding of bearish bets, or short covering, with “weak stocks and a little weaker dollar” ahead of the two-day Federal Reserve policy meeting Tuesday and Wednesday, said George Gero, managing director at RBC Wealth Management.

“Less buyers in U.S. securities need less dollars ahead of the [interest] rate hike expected Wednesday,” he said in a daily note.

Market expectations for 2019 Fed rate increases, once put at three to four more increases, have begun to lessen on the back of dovish comments from Fed officials, including Chairman Jerome Powell.

Don’t miss: The big question this week: Is the Fed about to completely break this market?

In other monetary policy updates this week, the Bank of Japan will make an announcement late Wednesday and the Bank of England meets on Thursday. The dollar has enjoyed relative strength against the yen and the pound, in part because of the interest-rate differential between the U.S. and its major economic allies.

On Monday, the ICE U.S. Dollar Index DXY, -0.24% a measure of the U.S. currency against a basket of six major rivals, was down 0.2% at 97.217. Gold is often sensitive to movements in the dollar. A weaker U.S. unit typically boosts demand for commodities priced in dollars as it makes them less expensive to users of other currencies.

Benchmark U.S. stock indexes, meanwhile, traded broadly lower after ending last week in a rout that pushed the Dow Jones Industrial Average DJIA, -0.13%  back into correction territory and sent the S&P 500 SPX, -0.02%  to its lowest close since April.

Stock weakness can also support gold, but gold’s haven popularity has been subdued for the most part so far in December.

“Although risk assets have been under pressure, their declines have been ‘orderly’ more or less, in the sense that despite the much higher volatility, there haven’t been signs of panic,” said Michalis Florentiades, chief economist and head of research for brokerage XM.

“For risk sentiment to improve, maybe the market needs to see some real signs that the U.S. and China are resolving some of their differences and less vague rhetoric about just how well the talks are progressing,” he said.

Investors will also keep an eye on China’s Central Economic Work Conference and a speech by President Xi Jinping on Tuesday as global markets want to see more progress on the trade spat between the U.S. and China.

Brexit is another geopolitical factor whose uncertainty is supportive for haven metals, though, again, the reaction has been muted so far. In the U.K., solutions to the Brexit dilemma are still hard to come by, a background story that is keeping the dollar bid, but not offering much extra boost for precious metals.

Read: Theresa May expresses confidence she’ll be able to amend EU deal

Meanwhile, the latest Commitment of Traders report showed that the “gold position flipped to a net-long for the first time in five months,” said Ole Hansen, head of commodity strategy at Saxo Bank. However, “while funds have moved towards a more bullish stance ahead of 2019, any additional dollar related weakness as seen on Friday could pose a short-term challenge.”

In other metals trade, March silver SIH9, +0.40%  rose 0.2% to $14.655 an ounce, with prices settling around 0.4% lower for last week.

March palladium PAH9, +1.33%  snapped back with a 1.4% rise to $1,188.10 an ounce. It had settled at a record high as recently as Wednesday on expectations of higher demand from the automotive sector, but two sloppy session since meant it finished less than 0.1% higher for the week.

January platinum PLF9, +0.61%  was down 0.2% at $784 an ounce, while March copper HGH9, -0.90%  fell 1.2% to $2.73 a pound.

The SPDR Gold Shares (GLD) was trading at $117.51 per share on Monday morning, up $0.45 (+0.38%). Year-to-date, GLD has declined -4.97%, versus a -2.47% rise in the benchmark S&P 500 index during the same period.

GLD currently has an ETF Daily News SMART Grade of B (Buy), and is ranked #1 of 35 ETFs in the Precious Metals ETFs category.

This article is brought to you courtesy of MarketWatch.

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