People buying Gold jewellery in a shop during the Diwali festival called Dhanteras in Kolkata Image Credit: Agency

Dubai: More downside is expected for gold as investors anxiously await the US Federal Reserve's decision on interest rates that will be known on Wednesday evening.

Analysts are forecasting the bullion to move lower towards $1,300 per ounce instead of climbing to the $1,400 level. The Fed's ruling on interest rates can have drastic impact on the precious metal, as well as the US dollar. Increased rates could put pressure on gold prices.

In Dubai, retail rates remained stable on early Wednesday morning, ahead of the Federal Reserve Open Market Committee (FOMC) discussions. As of 9am, the price of 24-karat gold remained unchanged at Dh159.75 per gram. Other gold pieces, 22K, 21K and 18K traded at Dh150.25, Dh143.25 and Dh122.75, respectively.

Another key factor to watch out for is the Bank of Japan meeting that is scheduled on Friday. The waning fears of Brexit aftermath, rising stock markets and falling bond yields could also provide less support for the bullion.

“We believe gold prices have come down and should continue doing so for [a number of] reasons. The impact of the Brexit on the European economy and financial markets has not been as negative as feared. Rising equity markets and falling bond yields signal returning risk aversion, which is causing headwinds for gold,” Carsten Menke, commodities research analyst at Julius Baer, told Gulf News.

“The gold market had become too complacent with US monetary policy, expecting a further postponement for interest rate hikes. Better economic data out of the United States suggests a revival of rate hiking expectations, which are another source of headwinds for gold.”

As of Monday, the precious metal slipped 0.4 per cent to trade at $1,317.04 an ounce following the rise of the US dollar against major currencies, including the Japanese yen and euro. The treasury team of the National Bank of Fujairah explained that gold’s recent decline can be attributed to the dollar’s strength, coupled with a return in risk appetite.

“Gold prices fell as the dollar firmed and a recovery in risk appetite supported world stock markets near nine-month highs ahead of central bank meetings in US and Japan,” the bank said.

However, should the demand for gold increase, the yellow metal can gain much needed support. “Switzerland’s combined exports to Hong Kong, China and India totalled 75 tonnes, the highest volume since January, which points to reviving gold demand in Asia,” said Raid Madiyeh, senior sales trader at Saxo Bank.

“In the long term and if this happens, gold could see a boost by safe haven concerns, until the markets are able to work out this outcome. In the short term, if USD continues to be supportive, $1,310 are critical support zones.”

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