Gold edges lower as dollar firms; weaker equities limit losses

Gold prices ticked lower on Tuesday as the dollar held near multi-week highs on reduced expectations of an aggressive US rate cut, although softer share markets capped the metal's losses.

Spot gold was down 0.1 per cent at $1,393.95 per ounce as of 0408 GMT. US gold futures were down 0.2 per cent at $1,396.50 an ounce. “Weakness in gold prices is largely due to easing of rate cut expectations and bond yields are recovering. Markets continue to price in a 25 basis point cut but it looks like sentiment is easing and the dollar has rebounded,” said Benjamin Lu, an analyst at Phillip Futures.

The dollar index was hovering near a three-week peak and the US Treasury yield curve hit its flattest level in more than a month after investors rolled back expectations for a sharp US rate cut at the end of July. A week ago, the market forecast an 80.1 per cent chance of a 25-basis-point cut, and a 19.9 per cent chance of a 50-basis-point cut, according to CME Group's FedWatch tool. The chances are now 98 per cent and 2 per cent, respectively.

Adding to the reduced expectations for a larger cut, US consumers in June lifted their inflation expectations for the first time in three months, New York Fed data showed on Monday. However, the decline in gold prices was limited by weaker financial markets, with Asian stocks falling to their lowest in two-and-a-half weeks on Tuesday.

“We're seeing a lot of Fed policy uncertainty leak into the equation across risk assets in general. Equity markets falling is the most poignant example supporting gold prices,” said Stephen Innes, managing partner at Vanguard Markets.

Market participants now await Fed Chairman Jerome Powell's two-day testimony before Congress, which starts on Wednesday for clues about a rate decrease. Meanwhile, holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell 0.15 per cent to 795.80 tonnes on Monday from 796.97 tonnes on Friday.

Hedge funds and money managers raised their bullish stance in COMEX gold in the week to July 2, the US Commodity Futures Trading Commission (CFTC) said on Monday in a report delayed because of the US Independence Day holiday.

On the technical side, spot gold may end its correction around a support at $1,387 and then retest a resistance at $1,421 per ounce, according to Reuters technical analyst Wang Tao.

Among other precious metals, silver gained 0.1 per cent to $15.04 per ounce. Palladium slipped 0.6 per cent to $1,551.87, and platinum fell 0.3 per cent to $811.17.

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