October 12, 2016 / 10:30 AM / 3 years ago

PRECIOUS-Gold firm after Fed minutes show rate hike could be soon

* Overall dollar strength weighing on precious metals
    * Fed's Sept meeting minutes show divide among members
    * Platinum and palladium under pressure from oversupply

 (Recasts following FOMC minutes; updates prices, adds comment,
byline, NEW YORK dateline)
    By Marcy Nicholson and Pratima Desai
    NEW YORK/LONDON, Oct 12 (Reuters) - Gold held modest gains
on Wednesday, after minutes from the Federal Reserve's September
meeting showed several voting policymakers judged an interest
rate hike would be warranted "relatively soon" if the U.S.
economy continued to improve.
    The minutes of the Sept. 20-21 meeting, however, showed the
depth of the divide on how much longer they should allow the
labor market and inflation to improve before raising rates.
    Spot gold was up 0.2 percent at $1,255.42 an ounce by
2:51 p.m. EDT (1851 GMT), hovering above last week's four-month
low at $1,241.20. 
    U.S. gold futures settled down 0.2 percent at
$1,253.80, prior to the release of the minutes. 
    "Markets seem to be just a bit relieved to find little to
suggest that the Fed would be ready to move as early as November
which, in truth, would burnish their apolitical bona fides,"
said Tai Wong, director of base and precious metals trading for
BMO Capital Markets in New York.
    "U.S. Treasury yields are marginally lower which has helped
encourage a few value buyers in gold near day's lows."
    Higher U.S. rates could boost the U.S. currency which when
it rises makes gold more expensive for holders of other
    Royce Mendes, director and senior economist at CIBC Capital
Markets in Toronto, saw it differently.
    "Now that the warning shot has been fired, as long as the
economy continues to post decent results, it appears to be a
question of when and not if the FOMC hikes rates before the end
of the year, with November now clearly on the table," Mendes
    Analysts said investors who typically buy gold as a hedge
against political and financial uncertainty were shunning it and
that was reflected in holdings in physically backed exchange
traded funds, which have plateaued overall this week at above 57
million ounces.  
    "The drying up of safe-haven demand, the risk of
profit-taking and the outlook for a stronger U.S. dollar suggest
further pressure on prices. The U.S. elections are the wild card
to watch," Julius Baer analysts said in a note.
    In other precious metals, spot platinum fell as low
as $934.50 an ounce, a six-month low, and later pared gains to
fall 0.6 percent at $939.49 an ounce.
    Palladium rose 0.2 percent to $648 after touching
$643.22, its lowest since July 19. 
    "Both markets will register annual deficits for this year
and next, but the high level of above ground stocks means that
there is no imminent physical tightness," Deutsche Bank said in
a note.  
    Silver gained 0.6 percent at $17.54.

 (Additional reporting by Swati Verma in Bengaluru; Editing by
Susan Thomas and Chizu Nomiyama)
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