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Gold clung to sharp overnight gains on Tuesday, bolstered by a weaker dollar and short-covering on rising expectations the Federal Reserve would not hint at a June rate increase at its policy meeting this week.
Spot gold was steady at $1,200.90 an ounce at 0645 GMT after jumping nearly 2 per cent in the previous session. The metal rose to its highest in a week at $1,207.01 on Monday on short-covering ahead of the Fed’s two-day meeting, which kicks off on Tuesday. A statement will be released on Wednesday.
“Nobody thinks an interest rate hike is going to come in June because of weak economic data,’’ said Ronald Leung, chief dealer at Lee Cheong Gold Dealers in Hong Kong.
Fed rate hike
Expectations had centred on a rate rise in June, but after recent sluggish economic data, many now believe the US central bank will probably not act until later in the year.
If the Fed continues to hold rates near rock-bottom levels, gold prices could be supported. Higher rates, however, could dent the demand for bullion, a non-interest-paying asset.
Weak dollar
A soft dollar was also helping gold on Tuesday. It fell to a three-week low against a basket of major currencies as the euro gained on hopes Greece was a step closer to securing fresh funding.
Weakness in the greenback typically boosts gold, seen as a safe haven at times of financial turbulence. Options-related buying also buoyed the prices on Monday as US May options expired at the end of the day with relatively heavy open interest at the $1,200 strike price, traders said.
In the physical markets, demand eased on Tuesday as the prices neared the key $1,200 level. “Buyers don't want to commit too much for physical gold at these prices,’’ said Leung.
SPDR Gold Trust
SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, said its holdings fell 0.44 per cent to 739.07 tonnes on Monday, the first decline in two weeks.
Among other precious metals, silver also retained overnight gains of more than 4 per cent. Platinum fell about 1 per cent after a 2.3 percent jump on Monday, its sharpest rise in nearly five months.
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