Spot gold dips, futures settle up ahead of options expiry

Key Points
  • Fed hikes interest rates, sticks to 2 more hikes view.
  • Gold up 1.4 percent so far for the week.
  • Trade war tensions between U.S. and China seen supporting gold.
Source: World Gold Council

Spot gold dipped on Thursday as the U.S. dollar pared losses on safe-haven buying from investors fearing a trade war between the United States and China, but gold futures rose, with one trader citing arbitrage trades.

U.S. President Donald Trump initiated trade action against China, saying the U.S. deficit with Beijing was "out of control" at about $504 billion and there was a huge "intellectual property theft situation."

Spot gold dipped 0.34 percent at $1,327.31 per ounce by 3:23 p.m. EST. U.S. gold futures for April delivery settled up $5.90, or 0.5 percent, at $1,327.40 per ounce.

One trader said investors were rolling from the expiring contract of April into the new front month, which is June.

"When you get close to a roll, you can see some dislocation. There are some arbitrage players who try to profit from that," said Michael Matousek, head trader at U.S. Global Investors. "It gets down to the liquidity sometimes. If you wait too late to roll, you're kind of doing yourself an injustice."

The U.S. dollar index bounced from a month low versus a currency basket. A stronger greenback makes dollar-priced gold costlier for holders of other currencies.

"We have another rush to cash so you see crude, copper also being sold as markets weaken all around," said George Gero, managing director at RBC Wealth Management.

Some market participants still expect a rebound in gold prices. "I know gold is down a little bit right now, but I wouldn't be surprised to see it reversed," said Chris Gaffney, president of world markets at EverBank.

Gold will likely trade within a tight range near term, traders have said, citing conflicting signals between support for bullion from geopolitical worries and pressure from strength in the U.S. economy.

Europe and U.S. equities fell as technology stocks stayed under pressure. "We expect the prospect of a trade war between the U.S. and other economies to put a floor under gold prices in the short term but ultimately we think that Fed tightening will prove too strong a headwind," Capital Economics analyst Simona Gambarini told the Reuters Global Metals Forum.

Meanwhile, spot silver dropped 0.76 percent at $16.399 per ounce, while platinum fell 0.51 percent at $949.10, earlier seeing a 1-week high of $963.60. Palladium fell 0.51 percent at $985 per ounce, earlier hitting a 1-1/2-week low at $967.