Gold firms ahead of Fed meeting
LONDON: Gold rose ahead of a US Federal Reserve policy meeting on Tuesday and Wednesday that is expected to yield clues to the timing and magnitude of future interest rate increases.
Spot gold was steady at $1,266.16 an ounce on Monday at 1410 GMT, having shed 1 percent on Friday in its biggest one-day percentage fall since May 18. US gold futures fell 0.3 percent to $1,268.20.
Meanwhile, strong speculative demand kept palladium near 16-years highs, though weak fundamentals are soon expected to take their toll on prices of the metal used to make autocatalysts for gasoline-fueled cars.
Palladium gained 0.1 percent to $891.50 an ounce after climbing above $910 on Friday, its highest since 2001.
“It seems to be speculators driving the price higher,” said Robin Bhar, head of metals research at Societe Generale, adding that there was a shortage of metal for immediate delivery.
That shortage has created a premium or backwardation of about $6 and $21 an ounce for the June and July futures respectively over the August contract. But analysts say declining car sales in China and the US point to weaker demand for palladium.
“The palladium market is experiencing a short-squeeze, which we believe is driven by investment demand rather than industrial demand,” said Carsten Menke, an analyst at Julius Baer. “Eventually, the weaker demand backdrop from automotive catalysts should be reflected in deteriorating sentiment and falling prices. We remain bearish.” However, the palladium market is expected to show a deficit of 792,000 ounces in 2017 from 163,000 ounces last year, Johnson Matthey said. Total palladium demand is estimated at more than 10 million ounces this year.
Overall, precious metals markets are waiting for the outcome of the Fed’s meeting. Higher rates, as expected by the market, could boost the dollar, making commodities priced in the greenback more expensive for holders of other currencies.
“Markets will be scanning the Fed’s language to see what it is thinking in terms of forward rate guidance and looking for clues on how it will shrink the balance sheet,” Bhar said.