February 28, 2018 / 8:18 AM / 6 months ago

Gold steadies after sharp falls linked to hawkish Fed, strong dollar

LONDON (Reuters) - Gold prices steadied on Wednesday after falling more than 1 percent in the previous session after new Federal Reserve Chairman Jerome Powell’s comments suggested the possibility of four U.S. interest rate increases this year rather than three.

Gold bullions are displayed at GoldSilver Central's office in Singapore June 19, 2017. REUTERS/Edgar Su/Files

The dollar hit a three-week high versus a currency index, with investors still bullish after Powell noted rising U.S. inflation and vowed to prevent overheating in the economy.

A strong dollar makes dollar-priced gold costlier for investors using other currencies.

Spot gold had edged up 0.2 percent to $1,320.36 an ounce by 1241 GMT. It closed 1.1 percent lower on Tuesday after hitting the lowest since Feb. 9 at $1,313.26.

U.S. gold futures were up 0.2 percent at $1,321.50.

“In the short term we’re bearish gold. Our forecast is for an average of $1,300 for the first quarter. The worst scenario for gold is a rising dollar and rising yield,” Macquarie analyst Matthew Turner said.

The dollar has strengthened from three-year lows hit on Feb. 16, with investors viewing the currency as oversold and as U.S. Treasury yields again approach recent four-year highs.

World stocks tumbled another quarter percent as dismal Chinese and Japanese manufacturing and industrial output data added to the bearish equities sentiment sparked by Powell’s testimony.

“Longer-term we see upside potential for gold coming from increased U.S. inflation and any renewed volatility in equity markets,” said Evan Metcalf, director of portfolio management and head of operations at ETF Securities.

Powell noted in his speech that recent data had strengthened his confidence in inflation.

Inflation is seen as gold-positive, with bullion viewed as a safe store of value when price pressures rise. However, lifting interest rates to fight inflation makes the non-yielding metal less attractive.

Spot gold is expected to break support at $1,317 per ounce and fall to the next support level at $1,303, as suggested by its wave pattern and a projection analysis, Reuters technical analyst Wang Tao said.

“People are looking to buy gold on dips, so I think it will be supported down at $1,300,” a Hong Kong-based trader said.

Silver was flat at $16.43 an ounce.

Palladium was up 0.8 percent at $1,043, while platinum fell 0.5 percent to $978.50 per ounce, after dropping to a two-week low of $973.50.

Additional reporting by Eileen Soreng and Nithin Prasad; Editing by Dale Hudson and Mark Potter

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