Gold futures moved up from one-week lows on Monday as investors awaited what’s widely expected to be the Federal Reserve’s third interest-rate hike of 2018 this week — a well-telegraphed move to markets.
December gold GCZ8, +0.51% was up $6, or 0.5%, at $1,207.30 an ounce. It settled Friday at $1,201.30, its lowest level in a week even as it ended little changed in price for all of last week.
Gold found support as the dollar index DXY, -0.17% slipped 0.3% to 93.937. The dollar and gold, which is chiefly priced in the U.S. currency, tend to move inversely. Gold prices based on the most-active contracts have declined by 7.8% so far in 2018 as the dollar index is up about 2% for the year to date, a divergent move driven in large part by the Fed tightening U.S. monetary policy more aggressively than the rest of the developed world.
Fed policy makers will meet for a two-day meeting ending Wednesday and the market is pricing in over a 90% chance of a quarter-point rate increase. The Fed has penciled in four moves in total this year and that means another hike is likely in December, though traders have shown some flashes of wavering confidence of late, citing trade uncertainty and global economic hiccups. That uncertainty puts added emphasis on the Fed’s statement.
Higher interest rates tend to boost the dollar and cut demand for nonyielding bullion in favor of assets delivering an attractive relative yield.
Gold has chopped in a narrow trading range since securing the $1,200 line earlier this month and its retreat this year, even as inflation has moved higher, has some strategists questioning whether now is the time to buy. Monday’s Need to Know column draws from the Barron’s cover story on this topic, which highlights strategists and their largely pro-gold stance, especially when used as a diversifier. The piece drew plenty of backlash on Twitter, however, with a chorus of voices questioning the metal’s inflation hedging utility.
But in a note Monday, analysts at Zaner Precious Metals said that “the precious metals markets and many other commodities have not embraced the potential for inflation inspired by spiraling tariff action, but we must continue to reiterate that prospect.”
“News that China had to cancel trade talks with the U.S. is a negative as [are] comments from a CNBC Chinese commentator suggesting that the tone in China is downbeat because of the tariffs,” they said.
In other metals action, December silver SIZ8, +0.11% rose 1.4 cents, or 0.1%, to $14.345 an ounce. Silver holds above the recent low of $14.142, set late last week, which marked the weakest settlement for a most-active contract since January 2016. The contract was up 1.5% for last week.
Among the exchange-traded funds, the popular SPDR Gold Trust GLD, +0.39% firmed 0.3%, while the iShares Silver Trust SLV, +0.40% added 0.2%. The VanEck Vectors Gold Miners ETF GDX, +1.12% rose 1.3%.
Palladium futures climbed last week to the highest settlements since February, buoyed by long- and short-term expectations for stronger global demand of the metal. Monday’s move continued the bullishness with December palladium PAZ8, +0.39% up $2, or 0.2%, to $1,046.90 an ounce. The contract surged by 7.7% last week. Sister metal platinum’s October contract PLV8, +0.16% was up $2.90, or 0.4%, to $832.50 an ounce.
“The palladium market might benefiting from China pre-buying supply for electric vehicles; but that is somewhat concerning for the bull camp as the trade war continues to extend and sentiment inside China is deteriorating and there are signs that the trade war is unending,” the Zaner analysts said.
December copper HGZ8, -0.26% slipped 0.3% at $2.850 a pound Monday.
In mining industry news, Randgold Resources Ltd. RNG, +3.05% and Barrick Gold Corp. ABX, +6.21% have agreed to an all-share merger that will create a $18.3 billion gold-mining giant.
The deal “highlights views that gold assets in general are undervalued,” said analysts at Zaner. The move also suggests that “gold miners think there is long term value in gold related assets.”
The combined operation will own five of the world’s top 10 tier-one gold assets with two potential tier-one gold projects under development or expansion, the companies said. The new group will consider selling noncore assets over time, they said. Based on 2017 results, the enlarged group would have generated revenue of $9.7 billion and adjusted earnings of $4.7 billion.
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