Investing.com - Gold gained slightly in Asia on Wednesday with the Fed widely expected to announce a quarter point hike in rates, but the language on 2018 will be seen as key for the precious metal.
Gold futures for February delivery on the Comex division of the New York Mercantile Exchange rose 0.28% to $1,245.20 a troy ounce.
Overnight, gold prices remained at five-month lows amid dollar strength which followed upbeat economic data pointing to an improving inflationary environment, while a widely expected Federal Reserve interest rate hike continued to weigh on the precious metal.
Upbeat wholesale inflation data pointing to an improving inflationary environment which could encourage the Federal Reserve to adopt a tighter rate-hike cycle in 2018 boosted the dollar, pressuring gold prices lower.
The Labor Department said on Wednesday its producer price index for final demand increased 0.4% last month. In the 12 months through August, the PPI rose 3.1% after rising 2.8% in October. That beat economists’ forecast of a 2.9% for November.
Following the solid PPI data on Tuesday, Bank of Montreal said that although markets are pricing about two hikes for 2018, a strong consumer inflation report due Wednesday, could alter the Fed’s future monetary policy plans.
As well as an interest rate decision, the Federal Open Market Committee is expected on Wednesday to reveal an update to the summary of economic projections, which could offer clues on monetary policy.
Rising expectations of tighter monetary policy has forced traders to slash their bets on gold as CFTC data showed large speculative net long positions in gold fell 51,100 to 173,300, a 17-week low.
Gold is sensitive to moves higher in both bond yields and the U.S. dollar – A stronger dollar makes gold more expensive for holders of foreign currency while a rise in U.S. rates, lift the opportunity cost of holding non-yielding assets such as bullion.