Gold kept in check as doubts grow about OPEC deal

By Eric Onstad

LONDON (Reuters) - Gold traded flat on Thursday, with earlier gains arrested by scepticism over whether OPEC members would be able to implement production cuts that could fuel inflation.

The Organization of Petroleum Exporting Countries on Wednesday agreed modest output cuts in the first such deal since 2008. The news gave oil an initial boost only for the price to slip as investors questioned whether the deal would be enough to rebalance a heavily oversupplied market.

"If OPEC ends up achieving its objective, it could significantly change the outlook for global inflation and the need to have a hedge (potentially through gold) against higher inflation," said Danske Bank senior analyst Jens Pedersen.

 

Though the agreed OPEC cuts are relatively small, Pederson considers them to be on the ambitious side.

"It will be a difficult task," he said. "Over the next couple of days, the gold market will keep an eye on this, but I doubt that we will get any significant details before the next OPEC meeting in November."

Spot gold was barely changed at $1,321.40 an ounce by 1000 GMT, having touched an overnight high of $1,325.80.

U.S. gold futures were up nearly 0.1 percent at $1,324.80.

While keeping an eye on the OPEC deal, the focus will shift to economic data due on Thursday, including U.S. GDP numbers.

But division between Federal Reserve policymakers on when to raise U.S. interest rates has sapped investor enthusiasm for trading on comments by officials from the central bank.

"The gold and dollar markets are currently without very strong direction. The mixed views from U.S. Fed officials have weakened their credibility and the market has stopped buying (on) their comments," said Jiang Shu, chief analyst at Shandong Gold Group.

The dollar index, which measures the greenback against a basket of currencies, rose 0.1 percent to 95.556 after touching a low of 95.338.

"With some time still to pass until the expected U.S. Federal Reserve rate rise in December, gold looks likely to hold range-bound over the short term," said MKS PAMP Group trader Sam Laughlin.

Silver fell 0.4 percent to $19.10 an ounce while platinum and palladium both rose 0.3 percent to $1,029 and $711.40 respectively. Palladium earlier touched its highest in more than seven weeks at $721.30.

(Additional reporting by Nallur Sethuraman in Bengaluru; Editing by David Goodman)