Gold futures prices slipped from two-week highs on Thursday, as the psychologically important $1,300 line remained elusive. Moderate stock strength kept the precious metal in check, although a weaker dollar limited losses.
“The dovish U.S. Federal Reserve has been supporting the market,” with some officials at the central bank suggesting a cautious approach to future interest-rate hikes, analysts at ICICI Bank wrote in a daily note. “This has kept a lid on the U.S. dollar while supporting dollar-denominated gold.”
“However, increasing demand for higher risk assets has kept a cap on gold prices,” they said. Global and U.S. benchmark stock indexes have traded broadly higher so far in the new year.
Gold for February delivery GCG9, -0.22% was off $3.40, or 0.3%, at $1,290.40 an ounce. It settled Wednesday at a two-week highs, at $1,293.80, on the back of political turmoil in the U.K. and U.S.
March silver SIH9, -0.72% also fell 12.3 cents, or 0.8%, to $15.515 an ounce in Thursday dealings.
U.S. stock saw mixed trading Thursday, while the ICE U.S. Dollar Index DXY, +0.06% a measure of the currency against a basket of six major rivals, edged up by less than 0.1% to 96.131.
Political uncertainty continues to underpin gold, however. Investors were increasingly worried that a U.S. partial government shutdown entering its 27th day would deliver a more lasting impact to economic growth in the first quarter. Financial markets also awaited next steps for Britain after Theresa May’s government narrowly survived a no-confidence vote Wednesday as she attempts to forge a path for the U.K.’s exit from the European Union.
Read: After historic Brexit defeat — what’s next?
Meanwhile, the Fed’s Beige Book, a snapshot of domestic economic activity released after gold futures settled Wednesday, revealed that contacts in “many” districts have become less optimistic in light of market volatility and political uncertainty. That could prompt Fed members to trim their expectations for higher interest rates in 2019, a potentially dollar-supportive, gold-negative development.
“On the one hand, the outlook for gold and other metals look bullish in 2019. The Fed’s likely inaction this year [according to some analysis, though others disagree] should help to devalue the dollar against her major rivals,” said Fawad Razaqzada, market analyst with Forex.com. The dollar and gold, primarily priced in dollars, usually have an inverse relationship.
“But on the other hand, the fact that all the other major central banks are meanwhile in no rush to raise interest rates means there is no real alternative currency that yield-seeking investors will be piling into yet,” he said in recent commentary. “So, the dollar could remain supported for a while yet.”
“That could change, however, once — sorry, IF — there is real progress made on Brexit to allow the Bank of England and, to a lesser degree, the European Central Bank, to tighten their policies,” Razaqzada said. “Only then could the dollar index start to break down more aggressively, boosting the metal as a result.”
Among other metals traded on Comex, March copper HGH9, +0.28% shed 0.3% to $2.665 a pound. April platinum PLJ9, +0.38% added 0.3% to $810.10 an ounce.
Palladium futures were on track to notch yet another record settlement, which would be its ninth in 10 sessions. March palladium PAH9, +2.61% traded at $1,351.80 an ounce, up 2.5%.
“Certainly the palladium market remains in deficit and the ability to increase production is extremely difficult but we question the magnitude of the market’s reaction,” analysts at Zaner Precious Metals wrote in a daily note Thursday.
“Palladium prices at times this morning have reached $57 an ounce above that of gold and it wouldn’t be surprising for palladium to become an investment ‘fad’,” they said. “In other words, it is possible that palladium’s own momentum will result in even more gains directly ahead.”
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