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Gold Hits 8-Month Highs as Fed Decision Looms

CommoditiesJan 29, 2019 02:35PM ET
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© Reuters. - Gold bulls may have found liberation beyond $1,300 an ounce, but economic and political tensions are necessarily evils for the yellow metal to make new highs and stay as investors' preferred hedge.

The spot price of XAU/USD traded at $1,311.50 per ounce by 2:14 PM ET (19:14 GMT) on Tuesday, after hitting an 8-month high at $1,311.78.

On the New York Mercantile Exchange's Comex division, the most-active gold futures contract settled up $5.90, or 0.5%, at $1,315.20. The contract's peak for the day was $1,316.70.

The rally came a day before the conclusion of a monthly policy meeting of the Federal Reserve, where the central bank is expected to keep interest rates steady after four hikes last year. Fed Chairman Jerome Powell could also reiterate in his Wednesday news conference his promise to be "patient" with future monetary tightening.

The dollar index, a contrarian trade to gold and which measures the greenback against six major currencies, rose 0.04% on Tuesday, making the yellow metal's ascent all the more remarkable.

While a dovish Fed has helped gold breach $1,300 after an extended struggle with that barrier, a Reuters price projection suggests the precious metal may be trapped again at the level.

According to the Reuters survey of 36 analysts and traders, the median forecast for 2019 was an average of $1,305 , up around 3% from the 2018 average.

Only in 2020 onward, is a price breakout expected, according to the poll, which predicts $1,350 for 2020. Even then, that will be below peaks of $1,374.91 in 2016 and $1,366.07 last year.

For gold to make new highs, "a weaker or at least not strengthening U.S. dollar, further U.S. stock corrections and ongoing geopolitical instability" were required, said Frederic Panizzutti at MKS, a Geneva-based precious metals refiner and trader, said.

Tensions running high in Tuesday's market from U.S. criminal charges against China’s Huawei for violating sanctions against Iran and allegedly stealing robotic technology from U.S. carrier T-Mobile (NASDAQ:TMUS) was another factor aiding gold. China condemned the actions as “unfair and immoral,” urging Washington to stop its “unreasonable suppression”.

The spat escalated tension ahead of the next round of trade talks between the world’s two largest economies that will begin on Wednesday, although U.S. Treasury Secretary Steve Mnuchin insisted that he expects significant progress and that the case against Huawei is a separate issue.

Adding to safe-haven appetite, the U.S. Treasury Department imposed sanctions on Venezuelan state-owned oil firm PDVSA as Washington called for the removal of current president Nicolas Maduro and backed the opposition leader, Juan Guaido, who has declared himself interim president.

“The risk is that we end up in a protracted stalemate and it begins to look more like an old Cold War style conflict where you have the Chinese and the Russians supporting Maduro and the rest of the world supporting Guaido," Deutsche Bank (DE:DBKGn) economist Michael Spencer told CNBC.

The spot price of XPD/USD traded at $1,342 per ounce, up $8.45, or 0.6%..

Spot palladium has traded above gold since hitting record highs of $1,440.35 on Jan. 17, making it the world's most valuable traded metal. Gold's all-time peak is, however, even higher in the $1,900 level.

The most-active palladium futures contract on Comex rose by $15.65, or 1.2%, to $1,304.95 per ounce.

In other precious metals on Comex, silver futures gained 8.7 cents, or 0.6%, to $15.85 per ounce.

Platinum futures rose by $1.90, or 0.2%, to $816.40 per ounce.

In base metals, copper rose 4 cents, or 1.5%, to $2.72 per pound.

Gold Hits 8-Month Highs as Fed Decision Looms

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