Gold edges lower ahead of rate decision

london — Gold prices edged lower on Tuesday as the dollar strengthened ahead of a meeting of the Federal Reserve at which the US central bank is expected to raise interest rates for the first time this year.

The looming Fed meeting has helped push gold down nearly 4 per cent from a 1-1/2-year high in January. Higher interest rates are negative for gold because they raise bond yields, reducing the appeal of non-yielding bullion, and tend to boost the dollar, making gold more expensive for users of other currencies.

Spot gold was down 0.3 per cent at $1,312.97 an ounce at 1002 GMT, while the dollar was slightly stronger against a basket of major currencies.

US gold futures for April delivery were 0.4 per cent lower at $1,312.50 an ounce.

“The market has fully priced in a rate hike,” Saxo Bank analyst Ole Hansen said. Investors were instead looking ahead to guidance on the pace of future rate increases, with the Fed likely to take a cautious approach that would help lift gold prices, he said.

“With inflation not really picking up, rising geopolitical risk, trade wars looming and a flattening yield curve — this is not a backdrop that gives the Fed any urgent need to step up the speed of rate hikes.”

Markets expect the Fed to raise rates three or four times this year. Gold prices have tended to fall ahead of rate hikes in recent years and to rise after them. As gold has fallen, funds have scaled back bets on higher prices, with the net long position in Comex gold falling to around 136,000 contracts from almost 210,000 in late January.