Gold steadies near one-week high; all eyes on Fed

BENGALURU: Gold firmed near a one-week high on Tuesday as investors cast doubts over the pace of interest rate hikes next year by the U.S. Federal Reserve which kicked off its two-day meeting earlier in the day.

Spot gold rose 0.25 percent to $1,248.93 per ounce at 1:19 p.m. EST (1819 GMT), having earlier touched its highest level since Dec. 10 at $1,250.27, just short of a five-month peak of $1,250.55 hit last week.

U.S. gold futures settled up little changed at $1,253.60.

"It appears the market is looking for a 'dovish' (rate) hike," said Tai Wong, head of base and precious metals derivatives trading at BMO.

"Gold is confidently eyeing the $1,250 highs of the move after enjoying its best day in a week yesterday as markets arrange books ahead of tomorrow's Fed result."

The dollar fell to its lowest in over a week earlier in the session, amid uncertainty after investors unwound long bets on the currency, expecting a slowdown in U.S. Fed's pace of interest rate hikes.

The U.S. central bank is widely expected to raise rates for a fourth time this year, but weak stock markets and slowing growth may prompt it to tone down its stance on monetary tightening.

"Chatter that the Fed could blink as soon as tomorrow is helping gold prices remain firm into the meeting," analysts at TD Securities said in a note.

"Any signs of a dovish hike would do well to start convincing the complex that the Fed will not move towards restrictive policy next year, when we expect prices will move substantially higher."

Gold tends to gain when interest rate hike expectations ease because lower rates reduce the opportunity cost of holding non-yielding bullion and weigh on the dollar, in which it is priced.

Meanwhile, concerns about global economic growth persisted, despite encouragement from strong earnings by U.S. tech companies.

"I think gold is going to catch a bid here, especially when the economy in U.S., in Germany and in China is slowing down," said Walter Pehowich, executive vice president of investment services at Dillon Gage Metals.

Gold price risks are "skewed to the upside in 2019,"  Standard Chartered analysts said in a note, adding they expect the metal to average $1,300 per ounce next year.

Meanwhile, spot palladium slipped 0.7 percent to $1,249.41 per ounce, after soaring to a record high of $1,269.5 on Monday. The metal continued to trade at a premium to gold.

Palladium is expected to continue its rally due to sustained supply shortfall, Pehowich said.

Silver was down 0.27 percent to $14.62, while platinum shed 0.1 percent to $792.70 an ounce.