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Gold remains near 3-month high, amid Fischer's dovish stance on Fed hike

Published 02/02/2016, 12:14 PM
Updated 02/02/2016, 01:03 PM
Gold lost $1.70 an ounce on Tuesday to close at $1,126.40

Gold lost $1.70 an ounce on Tuesday to close at $1,126.40

Investing.com -- Gold reached fresh three-month highs before falling back slightly at the close of trading on Tuesday, as investors continued to digest dovish comments from an influential Federal Reserve policymaker on the increased possibility of a delayed interest rate hike from the U.S. central bank.

On the Comex division of the New York Mercantile Exchange, gold for April delivery traded between $1,123.90 and $1,131.50 an ounce before settling at $1,126.40, down 1.70 or 0.15% on the session. At session highs, gold surged to its highest level since November 3. Over the last month of trading, the precious metal has increased by more than 6% in volume amid widespread concerns of a looming global recession.

Gold likely gained support at $1,046.20, the low from December 3 and was met with resistance at $1,175.10, the high from Oct. 28.

On Tuesday, investors continued to react to a closely watched speech by Fed vice chair Stanley Fischer on the possibility that the Federal Open Market Committee could delay its next interest rate hike beyond the first quarter. At an address before the Council of Foreign Relations in New York, Fischer noted that further declines in oil prices and a persistently strong dollar could suggest that inflation will remain lower than the Fed previously anticipated. Fischer eventually expects inflationary pressures to rise once temporary factors from the oil downturn and the appreciation of the dollar dissipate.

Inflation has remained under the Federal Open Market Committee's (FOMC) targeted objective of 2% for every month over the last three years. The U.S. Department of Commerce said on Monday that its Core Price Consumption Expenditures (PCE) index gained 1.4% on an annual basis in December, up from 1.3% a month earlier. The Core PCE index, which strips out volatile food and energy prices, is the Federal Reserve's preferred gauge on inflation.

Fischer declined to comment on the timing of the Fed's next rate hike at Monday's speech. Shortly after the FOMC abandoned a seven-year zero interest rate policy in December, the vice chair told CNBC that it could be appropriate to expect as many as four interest rate hikes in 2016. Last week, the FOMC left the target range of its benchmark Federal Funds Rate unchanged between 0.25 and 0.50%, citing volatility in global financial markets and reduced inflation expectations.

"The world is an uncertain place, and all monetary policymakers can really be sure of is that what will happen is often different from what we currently expect," Fischer said. "That is why the Committee has indicated that its policy decisions will be data dependent. That is, we will adjust policy appropriately in light of economic and financial events to best foster conditions consistent with the attainment of our employment and inflation objectives."

Any rate hikes this year are viewed as bearish for gold, which struggles to compete with high-yield bearing assets in rising rate environments.

Elsewhere, the Shanghai Composite Index surged 60.72 or 2.26% in overnight trading to end Tuesday's session at 2,749.57, its highest closing level in five sessions. It came one day after China's Purchasing Manager's Index (PMI) came in at 49.4 in January, remaining in contraction for the sixth consecutive month. The soft manufacturing data exacerbates fears of a continued slowdown in the world's second-largest economy.

China is the world's largest producer of gold and the world's second-largest consumer of the precious metal behind India.

The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, fell mildly to an intraday low of 98.79 before rallying to 98.97 in U.S. afternoon trading. The index remains near 12-month highs from December, when it eclipsed 100.00.

Dollar-denominated commodities such as gold become more expensive for foreign purchasers when the dollar appreciates.

Silver for March delivery lost 0.078 or 0.54% to close at 14.275 an ounce.

Copper for March delivery fell 0.003 or 0.13% to 2.055 a pound.

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