Gold steady as investors weigh US rate moves against fiscal outlook

Key Points
  • Upbeat U.S. economic data raises Federal Reserve rate hike prospects

Gold prices were steady on Thursday as investors weighed the impact of an expected rise in U.S. interest rates against uncertainty over the direction of U.S. fiscal policy.

Gold is highly exposed to interest rates and returns on other assets because rising rates lift the opportunity cost of holding non-yielding bullion.

Spot gold fell flat $1,278.03 an ounce at 1:37 p.m. ET, having touched a 3-1/2 week high of $1,289.09 on Wednesday.

U.S. gold futures for December delivery also touched even at $1,278.

Gold has traded in a tight range spanning about $24 in November.

ICBC Standard Bank precious metals strategist Tom Kendall said gold was stuck in a range, with the prospect of a rise in U.S. interest rates exerting pressure while uncertainty about the direction of U.S. fiscal policy offered support.

"The two are kind of pushing and pulling on global yields and on the gold price," he said.

Traders see a 96.7 percent chance of the U.S Federal Reserve raising rates at its Dec. 13 meeting, CME Group's FedWatch showed. It would be the Fed's third rate increase this year.

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At the same time, the U.S. Senate and House are considering tax cuts proposed by President Donald Trump's administration.

In economic news, underlying U.S. consumer prices increased in October, strengthening the view that a recent disinflationary trend worrying the Fed had probably ended.

Veteran Fed policymaker Eric Rosengren said on Wednesday that falling unemployment and sustained growth meant the economy had accelerated beyond a sustainable level, so the Fed should continue raising rates.

Another Fed policymaker, Charles Evans, said he would go with an open mind to next month's meeting.

"It is perhaps best to remain sidelined for now, as the gold complex seems to be trapped within a relatively tight trading range and has yet to assert a meaningful direction," INTL FCStone analyst Edward Meir said in a note.

In physical demand, a note by BMI Research said China's gold production growth is expected to slow over the years to 2026 because of depleting reserves and rising production costs.

"Undervalued overseas companies faced with debt and credit crunches will incentivise more overseas investment by Chinese gold miners," BMI Research added.

Meanwhile, global share prices gained as investors hunted for bargains after Europe's longest losing streak of the year and the worst run since March for leading indices.

In other precious metals, palladium rose 0.33 percent at $987.20 an ounce after touching a two-week low on Wednesday.

Silver gained 0.45 percent to $17.067 and platinum flatlined at $931.10.

A good time to buy gold with Fed December hike factored in?