Gold holds amid Brexit uncertainty
Gold held steady on Wednesday, supported by uncertainty around Brexit after MPs voted down British Prime Minister Theresa May’s deal to leave the European Union, and the hope for a rate hike pause by the US Federal Reserve.
Spot gold was steady at $1,289.31/oz at 2.51am.
US gold futures were also firm at $1,288.80/oz.
“The safe-haven appeal is quite strong as there are rising possibilities of a disorderly Brexit,” said Benjamin Lu, analyst with Phillip Futures, adding that the metal was holding pretty well despite competing influence from American equity markets.
British legislators defeated May’s Brexit divorce deal by a crushing margin, triggering political chaos that could lead to a disorderly exit from the EU or even to a reversal of the 2016 decision to leave.
“We’re seeing weakness in the economy in China as well as the US, and markets are expecting that the Fed might slow interest rates in the near future,” Lu said. In separate appearances on Tuesday, Fed policymakers from across the spectrum of views agreed that the central bank should pause further rate hikes until it’s clear how much the US economy will be held back by larger risks like slowing growth in China and narrower ones like the ongoing budget stalemate in Washington.
Gold tends to gain on expectations of lower interest rates, as they reduce the opportunity cost of holding nonyielding bullion.
Lower interest rates also tend to weigh on US yields and the dollar, in which gold is priced.
The US economy is taking a larger-than-expected hit from a partial government shutdown, with the longest such shutdown in US history dragging into its 26th day.
“The scaling back of [Fed rate hike] expectations removes a key drag on prices that hindered much of the upside momentum in 2018," Standard Chartered said.
“The macro backdrop is shaping up to be more supportive for gold. But we would caution restraint for now, as inflationary risks have been contained, USD weakness stalled in recent sessions and equity markets have stabilised.” –