Gold steady ahead of US Fed rate decision

Gold steady ahead of US Fed rate decision
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LONDON (Feb 1): Gold slipped off a more than one-week high on Wednesday as the US dollar firmed ahead of an interest rate decision by the US Federal Reserve which is expected to provide clues on monetary policy this year.

Gold is highly exposed to interest rates, particularly in the United States, as higher rates lift the opportunity cost of holding non-yielding assets and boost the US dollar, in which gold is priced.

The Fed is expected to keep US interest rates unchanged on Wednesday in its first policy decision since President Donald Trump took office, as the central bank awaits greater clarity on his economic policies.

"Gold is waiting to see what might happen later today so it isn't moving much," said Bernard Dahdah, a precious metals analyst at asset manager Natixis.

"General sentiment in the market is that the Fed will probably stick with the same message in favour of a Fed rate hike in June."

Spot gold was slightly lower at US$1,210.61 an ounce by 1120 GMT, after hitting US$1,215.31 in the previous session. US gold futures were flat at US$1,212.30.

Gold gained more than 5% in January — its best month since June 2016 — as the US dollar suffered its worst start to the year in three decades, hurt by Trump's comment that every "other country lives on devaluation."

The dollar index, which measures the greenback against a basket of currencies, was up 0.3% on Wednesday.

ETF Securities said it expects gold to end the year at US$1,230 per ounce about 2.5% from Tuesday's close.

"Gold prices could rise 8% in the first half of the year, aided by a weaker US dollar. However, the US dollar strengthening in the second half of the year and subdued enthusiasm for the metal in the futures market could drive a sell-off."

The bullish view is underscored by some of Wall Street's largest fund managers betting on gold, wagering that Trump's governing style and upcoming elections in Europe will combine to create more stock market volatility and boost demand for the metal seen as a safe haven.

Spot silver inched 0.3% to US$17.58 an ounce, after touching its highest in more than 11 weeks at US$17.61.

Platinum was firm at US$995. Palladium rose to its best in a week, up a percent to US$760.