Gold slips but manages to stay above $1,200 as dollar firms

Yellow metal dips after biggest percentage gain in 15 months on Friday

Gold inched lower as the dollar firmed yesterday, reversing some of the previous session’s gains which came after the US Federal Reserve chairman reiterated the central bank’s intention to raise interest rates further, albeit at a gradual rate.

Spot gold was down 0.2 per cent at $1,204.76 (Dh4,425) per ounce at 1116 GMT while US gold futures were down 0.2 per cent at $1,210.60 an ounce.

Fed chairman Jerome Powell’s remarks on Friday did not change market expectations for further monetary tightening despite opposition from President Donald Trump.

But the market interpreted Powell’s speech as dovish after he said a gradual approach to raising rates remained appropriate to protect the US economy, keep job growth strong and inflation under control. That pushed gold up 1.7 per cent on Friday in its biggest one-day percentage gain since May 2017.

But prices remained capped as higher rates, even if they come at a gradual pace, raise the opportunity cost of holding gold, which can be costly to store and insure.

“Our reading is that we still expect two more hikes this year and that should be the important thing near term for gold ... next year the Fed is still likely to continue hiking,” said Danske Bank senior analyst Jens Pedersen.

The dollar index, which tracks the greenback against a basket of six major currencies, was up 0.1 per cent. A weaker US currency makes dollar-denominated gold cheaper for holders of other currencies, which could boost demand and prices.

ActivTrades chief analyst Carlo Alberto De Casa said if prices hold at $1,200 an ounce, there is a good chance of further gains, with a target of $1,230/$1,235.

He added that below $1,200, the bearish trend could recover strength, with a first targeted support area at $1,180.

Hedge funds and money managers increased their net short position in COMEX gold contracts to another record in the week to August 21.