Rise in Gold Price Crimped by Concerns Over U.S. Interest Rates

Original article found on wsj.com

The price of gold was slightly higher on Tuesday, but its gains remain capped by concerns that U.S. interest rates and the dollar will rise.

Gold ended Monday’s U.S. trading session 0.4% lower as the dollar gained and investors bet the Federal Reserve will raise U.S. rates by the end of this year. Those concerns are likely to keep any gains in gold capped, analysts say.

“This morning, gold is recouping some of yesterday’s losses but the prospects of a strong dollar are keeping any bigger gains in check,” said Daniel Briesemann, analyst atCommerzbank in Frankfurt. “The perception in the market is that the dollar will appreciate against the euro in the coming months with U.S. Federal Reserve members indicating in the past few days that they will hike interest rates before the year is out.”

A strong greenback is a bearish signal for commodities like gold, which are traded in dollars. Higher rates makes gold less competitive with interest bearing securities.

Gold prices moved higher last week after the Federal Open Market Committee said it would leave interest rates pinned near zero, delaying a widely expected increase in borrowing costs. But several Fed officials said over the weekend they would still like to raise rates this year, placing a cap on gold’s rally that won’t go quickly.

Just as the belief that rates are likely to rise this year is capping gains, uncertainty about when that move will come is offering some support to the metal.

Matthew Turner, a precious metals analyst at Macquarie, said that the Fed’s message was somewhat confused.

“Gold does well when central banks look like they’re losing control,” he said.

The market is now waiting for a speech from Fed Chairwoman Janet Yellen on Thursday, which will provide further hints on where rates will go and when. Market participants will be watching Chinese manufacturing and gold trade data due out this week. China currently accounts for more than half of global gold demand.

Gold got a vote of confidence from the Central Bank of Russia on Monday, when it said it has purchased 1 million ounces of gold in August after buying 400,000 ounces in July. Russia is increasing its gold reserves to create a safety cushion against financial instability caused by international sanctions and declining oil prices.

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