Gold extends recovery as the dollar weakens, but upside seen ‘ limited’

BENGALURU — Gold edged up on Monday, extending its recovery from a 10-and-a-half month low hit last week, as the US dollar slipped from a 14-year peak against a basket of currencies.

Spot gold edged 0.30% higher to $ 1,137.76 an ounce by 0407 GMT. The bullion touched $ 1,122.35 on Thursday, its weakest since Feb. 2.

Gold now appears to have found a base; however, upside will be limited as investors look to other markets for yield, ANZ said in a note.

The dollar index, which measures the greenback against a basket of currencies, fell 0.20% at 102.720. The dollar hit a 14-year high of 103.56 following the Federal Reserve’s hawkish interest rate forecasts on Wednesday.

Gold is likely to rebound to $ 1,160-$ 1,180 levels before the yearend, said Mark To, head of research at Hong Kong’s Wing Fung Financial Group.

US gold futures gained 0.20% to $1,139.90 per ounce on Monday.

The Fed hiked rates for the first time in a year last week and projected three more increases in 2017, up from the two projected in September.

Richmond Fed President Jeffrey Lacker said on Friday the Fed will likely need to raise interest rates more than three times next year and faces challenges in gradually cooling off the US economy.

Gold is highly sensitive to rising rates, which lift the opportunity cost of holding non-yielding assets such as bullion, while boosting the dollar, in which it is priced. “Medium- to long- term view (for gold) is not optimistic,” said Wing Fung’s Mr. To. “I won’t be surprised if gold prices move down to $1,050-1,080 by the start of next year.”

Spot gold may bounce moderately to $1,153 per ounce as it has found a support at $1,121, according to Wang Tao, Reuters analyst for commodities technicals.

Holdings of the SPDR Gold Trust, the world’s largest goldbacked exchange- traded fund (ETF), fell 0.63% to 836.99 tons on Friday. Holdings are down over 11% since November. “(The fall in ETF holdings) illustrates the view investors are moving away from gold at least for the medium term,” Mr. To said.

Hedge funds and money managers cut their net long position in COMEX gold contracts for the fifth straight week, taking it to a 10-month low in the week to Dec. 13, US Commodity Futures Trading Commission data showed.

Silver gained 0.20% to $16.11 per ounce (/oz). Platinum steadied at $926.20 and palladium was down 0.50% to $691.90/oz. —