Gold supported by dovish Fed comments

The spot gold price stayed supported during Asian trading hours on Tuesday following overnight dovish comments from Federal Reserve governor Lael Brainard.

Spot gold was last at $1,330.95-1,331.30 per ounce, up $2.95 from Monday’s close. Trading ranged at $1,328.20-1,332.15 so far.

“The overnight dovish comments out of the Federal Reserve is giving the precious metals a boost and keeping the US dollar in check for now,” MKS Group said on Tuesday morning.

Gold should see support at $1,320-1,325, and resistance towards $1,340, the broker said.

The spot gold price had hit a one-week low on $1,320.55 on Monday on initial expectation that Brainard’s comments could be hawkish, similar to those made recently by other Fed speakers.

But expectations of a September rate hike were diminished after Brainard warned that it would be a mistake to raise interest rates too quickly and advocated for “prudence in the removal of policy accommodation.”

“My main point here is that in the presence of uncertainty and the absence of accelerating inflationary pressures, it would be unwise for policy to foreclose on the possibility of making further gains in the labour market,” Brainard said late on Monday.

After these comments were released, the CME Group FedWatch tool put the odds of a September rate increase at just 15 percent, down from 24 percent earlier in the day.

Brainard’s comments represent a noticeable change in tone after various Fed members have in recent weeks outspokenly championed a near-term rate hike despite uneven US data and questions over the health of the global economy.

The Fed is now in media lockdown mode going into the Fed meeting on September 21.

“Given our view that the Fed will remain on hold and is more likely to lift rates in December provided that economic and financial conditions remain in line with its outlook, we think the uptrend in gold will resume shortly. A fresh 2016 high in the next month or so remains our base case,” Boris Mikanikrezai, a metals analyst at FastMarkets, said.

In data, industrial production, fixed asset investment and retail sales data released from China were close to or better than expected.

Chinese August industrial production rose 6.3 percent year-on-year in August, close to expectations of 6.2 percent and higher than July’s reading of six percent.

Fixed asset investment in January-August increased 8.1 percent year-on-year, besting forecast of 7.9 percent and was at the same level of growth as in January-July.

August retail sales growth at 10.6 percent year-on-year also beat forecast of 10.2 percent and July’s growth of 10.2 percent.

Main economic indicators have improved in August with the promotion of structural adjustment and faster growth in new modes of growth, the Chinese National Bureau of Statistics said on Tuesday. The country is counting on the service sector to drive its economy as it makes a transition away from metal-intensive infrastructure projects towards a service-oriented economy.

But the foundation for economic stabilisation is not solid with both the domestic and overseas environment remaining complex and challenging, alongside many uncertain and unstable factors, the Bureau cautioned.

The country will continue to push supply-side reforms, moderately expand demand and employ policies to stabilise growth, it added. 

Other data due later on Tuesday includes the German ZEW economic sentiment and US NFIB small business index. European Central Bank president Mario Draghi is also set to speak in Trento, Italy later in the day.

In equities, the Shanghai Composite rose 0.01 percent to 3,022.17 recently on Tuesday.

In currencies, the US dollar index fell 0.01 percent to 95.11 so far on Tuesday.

In other commodities, the Brent crude oil spot price fell 0.33 percent to $47.98 per barrel, and the Texas light sweet crude slipped 0.17 percent to $45.91 recently.

In other precious metals, silver was last at $19.28/19.30, up $0.18. Platinum was recently at $1,061/1,067, up $13, and palladium gained $10.50 to $665/675 recently on Tuesday.

On the Shanghai Futures Exchange, gold for December delivery was last unchanged at 287.90 yuan per gram, and the December silver was flat at 4,299 yuan per kilogram.

(Additional reporting by Dalton Barker)

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