July 31, 2019 / 4:35 AM / 3 months ago

Gold heads for third monthly gain, markets await Fed decision

(Reuters) - Gold prices inched lower on Wednesday but were still heading for a third straight monthly gain, with markets awaiting the outcome of the U.S. Federal Reserve’s policy meeting and a widely expected cut in interest rates.

FILE PHOTO: Marked ingots of 99.99 percent pure gold are placed in a cart at a plant owned by Krastsvetmet, one of the world's biggest manufacturers of non-ferrous metals, in Krasnoyarsk, Russia, April 9, 2019. REUTERS/Ilya Naymushin/File Photo

Spot gold was down 0.2% at $1,428.09 an ounce at 09:40 a.m. EDT (1340 GMT), while U.S. gold futures were steady at $1,428.50.

Expectations for an interest rate cut by the Fed and other leading central banks, which would cut the opportunity cost of holding non-yielding gold, have put the metal on track for a 1.5% gain for July.

“The metal looks strong for now. In the recent time it has been supported by falling government bond yields. Gold’s next moves will be dependent on how dovish the Fed will be today,” said Fawad Razaqzada, market analyst with Forex.com.

The Fed’s decision is due at 2 p.m. EDT (1800 GMT) in Washington, with Chair Jerome Powell scheduled to hold a press conference soon after.

Fed funds rate futures are now fully pricing in an interest rate cut of 25 basis points, which would be its first since the financial crisis more than a decade ago, and a further reduction of another 25 basis points by September.

Backing a dovish policy tilt by the U.S. central bank’s policymaking Federal Open Market Committee, U.S. consumer spending and prices rose only moderately in June, pointing to slower economic growth and benign inflation.

“Should the FOMC surprise either via a 50 bp rate cut or a more dovish tone than expected, the key top-side target for bullion remains at $1,450,” industrial and trading services group MKS PAMP said in a note.

“Aside from the FOMC meeting, there remain a number of ongoing risk events to provide price direction to bullion, namely the increasing likelihood of a no-deal Brexit and a lack of progress between the U.S. and China in trade negotiations.”

U.S. President Donald Trump warned China against waiting out his presidency before finalising a trade deal, saying the outcome could be no agreement or a harsher one if he wins re-election in November 2020.

“So far, because of the fact (bond) yields have been falling and the technical structure has been bullish, traders have been happy to pick gold at the dips. But that could change today” after the Fed meeting, Razaqzada said.

Among other precious metals, silver slipped 1% to $16.39 an ounce, and platinum jumped 1.3% to $877.17 per ounce, both on track for a second straight month of gains.

Palladium rose 1.5% to $1,537 per ounce.

Reporting by Nallur Sethuraman and Swati Verma in Bengaluru; Editing by Will Dunham and Tom Brown

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