Gold futures eked out back-to-back gains Tuesday as the dollar index softened ahead of the Federal Reserve decision, which could yield a third rate increase of the year—a negative development for gold because it can bolster the dollar.
December gold GCZ8, +0.09% rose 70 cents, or less than 0.1%, to settle at $1,205.10 an ounce, gaining as the dollar index DXY, -0.12% traded little changed at 94.155.
The dollar and gold, which is chiefly priced in the U.S. currency, tend to move inversely. Gold prices based on the most-active contracts have declined by 8% so far in 2018 while the dollar index is up about 2.2%.
Higher interest rates tend to boost the dollar and cut demand for nonyielding bullion in favor of assets delivering an attractive relative yield. Yet gold gained modestly Tuesday even as the 10-year Treasury yield approached seven-year highs.
Fed policy makers’ two-day meeting ends Wednesday and the market is pricing in over a 90% chance of a quarter-point rate increase. The market is penciling in four rate increases in 2018. However, traders have shown some flashes of wavering confidence amid trade spats and signs of global economic slowing.
The rate hike “has already been priced in, but gold traders will be on the look out for insights on the economic projections and Chair Jerome Powell’s news conference,” said Alfonso Esparza, senior currency analyst at Oanda. “A neutral to dovish speech from Chair Powell could boost gold prices, especially if it comes from more mentions of trade turmoil risks.”
So far, “gold has struggled as a safe haven under trade war concerns as investors have flocked to the safety of the U.S. dollar, putting downward pressure on the yellow metal,” he said.
And metals markets are largely already looking past this Fed decision. Some strategists think the market’s ability to hold $1,200 for roughly the last two weeks is potentially significant.
“When it comes to a long-term perspective, I believe I am still holding bullish views about the precious metal,” said Naeem Aslam, chief market analyst with Think Markets. “Midterm U.S. elections, geopolitical tensions around the globe and most importantly, the deteriorating situations around the U.S. fiscal balance are all going to provide a strong tailwind for the metal to continue to move higher. It could easily touch the level of $1,500 by next year.”
Meanwhile, December silver SIZ8, +1.07% added 1.1% to $14.493 an ounce, while December copper HGZ8, -0.51% slipped by 0.4% to about $2.824 a pound.
Palladium again marked its highest settlement since February, buoyed by long- and short-term expectations for stronger global demand. On Tuesday, December palladium PAZ8, -0.01% rose 0.2% to $1,053.80 an ounce—up 10 sessions in a row. Sister metal platinum’s October contract PLV8, -0.66% fell 0.8% to $822.90 an ounce.
Among the exchange-traded funds, the popular SPDR Gold Trust GLD, +0.16% firmed by 0.2%, while the iShares Silver Trust SLV, +1.34% rose 1.4%. The VanEck Vectors Gold Miners ETF GDX, +0.27% added 0.3%.