Gold Reverses Higher as Dollar Falls Against Basket of Currencies

Gold reversed course after early weakness to move higher for the session as the U.S. Dollar slipped lower against a basket of currencies and as investors waited for clues as to the timing of the next Fed rate hike.

December Comex Gold futures were trading $1326.70, up $3.00 or +0.24% at 1000 GMT. Spot Gold, was trading up 0.4% at $1322.55.

Prices for the precious metal have retreated since September 7 after reaching a high at $1357.60 despite diminished expectations for a Fed rate hike since late Monday. According to CME FedWatch, markets are pricing in just a 15 percent chance that U.S. interest rates will be hiked this month. The same indicator pegs a December rate hike at about 50 percent.

The big picture indicates the Fed will raise rates later this year so gold prices are probably capped for the next three months, barring a sharp sell-off in U.S. equities. If this occurs then gold could retrace to its high for the year if stock investors decide to use it to hedge against losses. It’s all about the opportunity cost of holding gold since it doesn’t pay a dividend or interest. Higher rates make it a less attractive investment.

The recent price action indicates that investors may have started to move money into assets other than gold due to the threat of a rate hike because records show that holdings of gold in physically backed exchange-traded funds are down 1.7 percent at 56.27 million ounces since August 5.

Gold reached its high for the year on July 6, nearly two weeks after the U.K.’s vote to leave the European Union shook up the financial markets. Prices began to retreat when the doom and gloom predicted by many analysts failed to materialize.

December Comex Silver futures which at times have moved lock-step with gold and other times took the lead in the metals complex were trading at $19.15, up $0.175 or 0.92%. October Platinum which has taken on both the characteristics of a precious metal and industrial metal this year are up $9.20, or +0.89% at $1045.20. December Palladium which closely tracks platinum is at $660.75, up $4.65 or +0.71%.

Helping Platinum catch a bid is the news that top producer Anglo American Platinum announced it’s shutting down a smelter responsible for one fifth of its refined platinum output capacity.

The news that South African mine production figures for July released on Tuesday showed PGM output fell by 10.8% compared to June and 8.2% year on year as miners close down unprofitable mines and safety stoppages halt operations, has also helped underpin platinum prices.