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Gold steady as investors weigh political risks against U.S. rate rise

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Reuters
Last Updated : May 31 2017 | 5:50 PM IST

By Maytaal Angel

REUTERS - Gold held steady on Wednesday as investors weighed the increasing risk of a U.S. interest rate increase next month against the simmering geopolitical tensions that have been supporting bullion.

The dollar recouped its losses in the previous session, rising strongly against sterling after a projection by polling company YouGov showed British Prime Minister Theresa May could lose an overall majority in parliament in a June 8 election.

The projection raised the prospect of political deadlock just as formal Brexit talks begin.

Also helping the dollar, U.S. consumer spending recorded its biggest increase in four months in April and monthly inflation rebounded, pointing to improving domestic demand that should allow the Fed to raise interest rates next month.

"The market has been over-enthusiastic in terms of the weakness (seen). Once the rate hike happens, people will focus on political uncertainty and on the physical support (for gold)," said Hamza Khan, head of commodities strategy at ING.

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"Fundamentally we favour the upside. We see prices at $1,350 (an ounce) for the third quarter, and $1,250 for the second quarter."

Spot gold edged up 0.1 percent to $1,263.91 per ounce at 1124 GMT after slipping earlier in the day. It closed 0.3 percent lower on Tuesday after rising to a one-month high of $1,270.47. For the month, bullion is down 0.4 percent.

U.S. gold futures were up 0.1 percent at $1,263.30.

U.S. interest rate futures on Tuesday indicated a nearly 89 percent chance of a June rate rise, according to CME Group's FedWatch tool.

Higher rates would reduce the demand for non-interest bearing bullion as well as boosting the U.S. dollar, making dollar-priced gold costlier for non-U.S. investors.

Political tensions in the United States and Europe continue to support gold and have prevented any major losses for the metal, said Yuichi Ikemizu, Tokyo branch manager at ICBC Standard Bank.

Spot gold may break a support at $1,257 per ounce and fall to the next support at $1,245, according to Reuters technical analyst Wang Tao.

In other precious metals, silver slipped 0.1 percent to $17.34 an ounce though was 0.6 percent higher for the month.

Platinum was up 1.1 percent at $939 an ounce after falling 1.9 percent in the previous session in its biggest one-day percentage loss in nearly a month.

Palladium was up 0.7 percent at $810.20 an ounce and on track for a monthly decline of 2 percent, its first monthly drop this year.

(Additional reporting by Vijaykumar Vedala in Bengaluru; editing by David Clarke and David Evans)

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First Published: May 31 2017 | 5:34 PM IST

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