Gold Prices Fall Again as Traders Trim Bets Ahead of Fed

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Investing.com - Gold prices recovered slightly after falling to their lowest level in five days Tuesday, as rising hopes for an interim trade deal between the U.S. and China continued to tease money out of havens and into risk assets.

However, there was no broad-based risk-on movement ahead of the Federal Reserve's policy meeting, with bond yields consolidating a touch lower after a sharp rise since the start of the month.

The selloff in bonds this month has raised the opportunity cost of holding non-interest-bearing bullion considerably. While there was some $17 trillion in bonds trading at negative yields in September, that’s now fallen to around $13 trillion, according to the World Gold Council.

By 11:30 AM ET (1530 GMT) gold futures for delivery on the COMEX exchange were down 0.3% at $1,491.60 a troy ounce, while spot gold was down 0.2% at $1,489.23.

Silver futures were off 0.2% at $17.85 an ounce, while platinum futures were 0.5% higher at $923.10.

With the market already heavily positioned for an interest rate cut when the Federal Reserve’s policy meeting ends on Wednesday, the risks for gold are arguably skewed to the downside – especially if Chairman Jerome Powell’s guidance leaves doubt about the future path of rates.

Powell has said repeatedly that the high level of uncertainty emanating from issues such as the trade dispute with China, or the risk of a disorderly Brexit, had been the main factor holding back the U.S. economy over the summer.

But with a partial trade truce with China reportedly nearing completion and with the EU having granted the U.K. another three-month extension, near-term risks appear to have abated for now – even if the most recent batch of economic data have been underwhelming. The October U.S. consumer confidence index fell to its lowest level since June, according to data out of the Conference Board on Tuesday, while the Dallas Fed’s index of regional manufacturing activity slipped back into recessionary territory in October and service sector companies sharply lowered their outlooks.

Alistair Hewitt, head of market intelligence at the World Gold Council, argues that the global outlook for gold is still supported by the outlook for monetary policy. A total of 54 central banks have cut their rates so far this year, he pointed out in a blog post on Tuesday. Among those cutting last week were three of the world’s largest emerging economies: Russia, Turkey and Indonesia.

“Looking ahead, more central bank interest rate cuts are likely, further supporting investor interest in gold,” Hewitt said.