Morning Gold: Gold Slight Rise, Worries Around Fed Stimulus

Gold Price

(Reuters) – On Wednesday, gold made a slight increase, after falling 1% the previous session, but a stable dollar and firmer U.S. Treasury yields, together with fears around the U.S. Federal Reserve might begin tapering its monetary stimulus shortly capped further upside.

A pullback in the Fed’s $85 billion monthly bond purchases would help a higher interest rate environment that weakens gold’s appeal.

MKS analyst Frederic Panizzutti said “One of the prevailing factors for gold at the moment is the dollar movement and in the total absence of other fresh factors that can impact prices, the market remains stuck on the QE, non-QE story,” he added “We are in pure summer trading and we may remain in the $1,300/$1,350 range for few weeks yet.”

Spot gold increased 0.3% to reach $1,324.86 an ounce by 1048 GMT. It dropped 1.1% on Tuesday, concluding a four-day winning streak after a further import curbs by key buyer India and a firm U.S. economic data.

The London A.M. fix is $1,323.25.

The dollar was strong, hitting near one-week high against other major currencies after U.S. retail sales data indicating to a boost in consumer spending on Tuesday sent Treasury yields over 2.7% and strengthened the case for a Fed tapering earlier.

On Tuesday, Atlanta Fed President Dennis Lockhart said, the U.S. economic performance still very mixed for Fed policymakers to plan a detailed path for tapering and sooner or later halting their asset-purchasing next month.

The upcoming Fed meeting is planned for September 17-18. Till then, markets will scrutinize economic data to gauge the strong economic recovery. The leading event on Wednesday is a speech by St. Louis Fed President James Bullard on the monetary policy and U.S. economy  at 1915 GMT.

UBS Wealth Management analyst Dominic Schnider said “Once the taper is out, it will hit gold once more, though likely not to the same extent as drops earlier this year,”