Gold treads water as spotlight shifts to US Fed Reserve meeting

Gold prices edged up on Monday on a weaker dollar, as investor attention moved to central bank meetings this week for clarity on their rate hike strategies

By Seher Dareen

(Reuters) - Gold prices edged up slightly in choppy trade on Monday as investors looked ahead to the U.S. Federal Reserve policy meeting this week amid expectations of a slowdown in rate hikes.

Spot gold was up 0.1% to $1,928.39 per ounce by 10:28 a.m. ET (1528 GMT). U.S. gold futures were down 0.2% to $1,926.70.

"The way that the Fed pitches that story will reflect in the gold market," said Daniel Pavilonis, senior market strategist at RJO Futures.

"The bigger picture here is that if the Fed slows down on rates, inflation comes roaring back. If the Fed pauses for a little bit and inflation is still there - I think in that scenario gold would take off."

The rate increase expected at the Federal Open Market Committee's Jan. 31-Feb. 1 meeting - 25 basis points - would bring the policy rate to the 4.5%-4.75% range, short of the 5% plus level most Fed policymakers were vouching for.

Gold, which pays no interest, tends to benefit when interest rates are low as it reduces the opportunity cost of holding bullion.

Expectations for a slowdown in Fed rate hikes grew after the Fed's preferred inflation gauge - U.S. consumer spending - fell for a second-straight month in December, putting the economy on a lower growth path heading into 2023.

However, the number of people filing for jobless benefits keeps dropping - signalling a tight labour market that could force the Fed to keep hiking rates.

Meanwhile, benchmark U.S. 10-year bond yields were hovering near two-week highs, limiting gold's rise. [US/]

Investors are pricing in a 50 bps rate hike from the Bank of England and the European Central Bank, which also have policy meetings this week.

Spot silver rose 0.6% to $23.71 per ounce, platinum was down 0.1% to $1,010.99, while palladium gained 0.8% to $1,631.34.

 

(Reporting by Seher Dareen in Bengaluru; Editing by Christina Fincher)