Dubai gold prices still losing steam

Upcoming Fed Reserve meeting fuels short-term uncertainty for precious metal

Dubai: The precious metal continued to show signs of weakness as the much anticipated United States Federal Reserve talks draw closer.

Gold’s retail prices in Dubai dropped further over the weekend. As of Sunday, 12:30pm, 24 karat (24K was retailing at Dh158.75 per gram, down by Dh1.75 from Wednesday’s closing rate.

Some analysts are forecasting gold’s strength to remain in place, but expectations of another interest rate increase is fuelling some short-term uncertainty.

“The rally in gold is running out of steam as Fed rate hike expectations have resurfaced. We now expect a period of consolidation as long as Fed rate hikes for 2016 and 2017 are not fully priced in,” ABN Amro said in its latest monthly analysis.

“We hold on to our view that the uptrend in gold remains in place because of US economic growth will likely be below inflation… However, the prospect of Fed rate hikes will weigh on gold.”

In the latest survey conducted by Kitco, experts in Wall Street are somewhat divided on their view about gold’s direction this week, with 38 per cent banking on the precious metal to trade higher, while 31 per cent are bearish. About 31 per cent of the survey respondents are neutral.

The Federal Open Market Committee (FOMC) is scheduled to tackle interest rates during its two-day meet starting from Tuesday, September 20.  While market experts have put down the risk of higher rates to only about 15 per cent to 20 per cent, there is still some degree of anxiety in the markets.

“The market has maintained a lingering worry that Janet Yellen (Fed’s chair) and her fellow members of the FO may opt to strike,” Ole Hansen, head of commodity strategy at Saxo Bank, said in its note on Sunday.

“Several hawkish, but also one dovish, comments from Federal Reserve officials over the past week has left some members boxed in with another ‘no change’ outcome potentially raising some credibility issues.”

Hansen said this week’s meeting of the Fed, as well as that of the Bank of Japan, should provide the market with some additional guidance and direction.

“Precious metals have been back on the defensive this past week with the shake-out in both bonds and stocks hurting the general level of the appetite for risk in the market,” Hansen said. “The negative impact of rising bond yields have prevented gold from reacting to the tailwind from a weaker dollar.|