Gold edges up after falling to 10-month lows

A woman tries on a gold bracelet at a jewellery showroom in the eastern Indian city of Siliguri. Image Source: Reuters

Gold inched up on Tuesday as bargain-hunters moved in after prices touched their lowest in 10 months the session before, but a possible US rate hike as early as next week capped gains.

"With a Fed rate hike approaching, the whole market is just waiting for that," said Jiang Shu, chief analyst at Shandong Gold Group.

Shu said gold was seeing some support from buying by Chinese jewellery makers ahead of an early Spring festival next year.

Spot gold was up 0.2% at $1,172.30 an ounce by 0453 GMT. It touched $1,157 an ounce on Monday, its lowest since February 5.

US gold futures, which also marked a 10-month low in the prior session, shed 0.2% to $1,173.90 per ounce.

"The expected increase in key interest rates is largely taken into account in current prices. However, we do not exclude a drop of the gold price to $1,150 per ounce," Heraeus Metals wrote in a note.

Bullion is highly sensitive to rising interest rates, which make the non-yielding asset less attractive while boosting the dollar, in which it is priced.

US services sector activity hit a one-year high in November, with a surge in production boosting hiring, further evidence of strength in the economy that clears the way for the US Federal Reserve to raise interest rates next week.

ALSO READ: US services sector accelerates in November: ISM

Interest rates futures implied traders saw a 93% chance the US Fed would raise rates by a quarter point to 0.50-0.75% next week, CME Group`s FedWatch showed.

Fed officials cautioned on Monday that the incoming Donald Trump administration`s economic plans should not be cast as if the economy is in crisis, but instead be designed to help the economy`s long-run prospects.

Fed officials worry there is risk that overly aggressive fiscal, tax and other changes could become inflationary given the economy`s current strength. That could force the Fed into more rapid interest rate increases and possibly raise the risk of recession.

"Gold will likely remain under pressure going into year-end," Edward Meir, an analyst with INTL FCStone, said in a note.

He pointed to the combined impact of higher rates, a stronger dollar and buoyant US equity markets, coupled with significant exchange-traded fund (ETF) outflows and weaker Indian physical demand.

Holdings of the SPDR Gold Trust, the world`s largest gold-backed ETF fell 0.04% to 869.90 tonnes on Monday.

Among other precious metals, silver was up 0.4% at $16.80 per ounce and platinum rose 0.2% to $936.10 an ounce.

Palladium added 0.7% to $747.90 an ounce.

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