Gold rises on hopes of Fed pause; trade talks in focus

Spot gold now up 0.2% at US$1,308.66 per ounce. (AFP pic)

BENGALURU: Gold prices edged higher on Thursday as soft US inflation data raised expectations that the Federal Reserve will pause rate hikes this year, while investors were looking for developments in trade talks between Washington and Beijing.

Spot gold was up 0.2% at US$1,308.66 per ounce, as of 0806 GMT. US gold futures were down 0.2% at US$1,311.80.

US consumer prices were unchanged for a third straight month in January, leading to the smallest annual increase in inflation in more than 1-1/2 years, which could allow the Federal Reserve to hold interest rates steady for a while.

“If you look more broadly, the Fed is unlikely to raise rates in an environment where inflation is still low,” said Ilya Spivak, a senior currency strategist at DailyFX.

There is a dense layer of technical support for gold around US$1,294-US$1,307, he added.

Gold prices touched a more than one-week high of US$1,318.12 on Wednesday, but pared gains in the late session on the dollar’s strength.

The dollar benefited from sustained strength in core US inflation. In the latest 12-month period, the so-called core CPI rose 2.2% for a third straight month.

“The data was supportive for dollar. You can see intraday declines (in gold on the data), but there is not enough juice for a downside breakout in gold,” Spivak said.

Gold prices have risen nearly 13% since touching more than 1-1/2-year lows in mid-August, mostly on expectations of a pause in interest rate hikes and tumultuous stock markets.

The US central bank held rates steady in late January and promised to be “patient” in rate moves due to impending slowdown and uncertain trade backdrop.

Several Fed officials have indicated that they will support a pause in interest rate hikes to assess its impact on the economy.

Lower interest rates reduce the opportunity cost of holding non-interest bearing gold and weigh on the dollar.

Meanwhile, investors were hoping for a breakthrough in the trade impasse between the United States and China and US President Donald Trump said on Wednesday the talks were “going along very well.”

“A strong dollar is pressuring gold prices and physical buying is also limited,” said Peter Fung, head of dealing at Wing Fung Precious Metals in Hong Kong.

“Gold should be range-bound around US$1,305-US$1,315 levels as it lacks a direction until the trade talks are over.”

With gold unable to break higher, outflows rose in holdings of SPDR Gold Trust, the world’s largest gold-backed ETF. Holdings have fallen over 3% so far this month.

Elsewhere, palladium rose 0.6% to US$1,403.98 per ounce.

Platinum was down 0.2% at US$782 per ounce, while silver rose 0.7% to US$15.68.