Gold Capped by Fed Worries; Supported by Election Concerns

Gold traded steady to slightly better on Tuesday with gains capped by expectations of an interest rate hike by the Fed on Wednesday, but supported by political risks in Europe.

Traders had little reaction to the rise in the dollar index which was supported by firmer U.S. Treasury yields. Typically, a stronger dollar pressures dollar-denominated gold because it decreases demand for the precious metal as an investment.

Gold investors also focused on Wednesday’s Dutch elections, which boosted gold’s appeal as a safe haven asset. Traders say that the anti-Islam Party for Freedom is seen as having little chance of winning, but a strong performance by the group would fuel worries over a surprise in French presidential elections in April and May. The campaign issues in France are membership in the Euro Zone and the European Union.

Gold is also being supported by issues in Britain, including increased concerns over a second Scottish independence referendum and the triggering of Article 50, which will formally begin British negotiations to leave the European Union.

Investors are also supporting gold in the ETF market with holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, rising 0.83 percent on Monday.

Crude Oil

U.S. May West Texas Intermediate crude oil futures hit a three-month low after OPEC reported a rise in global crude stock. Additional, Saudi Arabia surprised investors by announcing a jump in production despite production curbs by the cartel.

Outside analysts said Saudi output fell in February to 9.797 million barrels per day, but the nation told OPEC its production rose to 10.011 million barrels per day.

In January, the Saudis were compensating for the lack of compliance of others. This helped underpin prices. However, the Saudis said that this was no longer the case in February. This is the bearish development putting pressure on crude oil prices today.

Late today, investors will get the opportunity to react to the latest inventories data from the American Petroleum Institute. Last week, the API reported a big jump in inventories, helping to drive prices down nearly 8 percent.

Economic News

On Tuesday, the U.S. reported the Producer Price Index (PPI) rose 0.3 percent in February. In the 12 months through February, the PPI rose 2.2 percent, the biggest advance since March 2012 and ahead of the 2.0 percent gain forecast by the experts.

Additionally, the National Federation of Independent Business (NFIB) said its small business optimism index fell 0.6 points to 105.3 last month.