Gold Steady on Fed Uncertainty
Tuesday, 18 December 2018
Gold prices dropped slightly over the week, with the precious metal steadying to US$1242.30 per ounce after last week's strong movement. Most of the uncertainty for bullion was based on the strength of the US dollar, which rose in anticipation of the Federal Reserve's interest rate decision next week and renewed concern about an economic slowdown in China. In other precious metal news, silver fell 1.1 percent to US$14.63 per ounce, palladium recorded its third straight weekly gain, and platinum turned the tide to post its first weekly gain in six weeks.
Markets brace for Fed decision
Much of the market movement last week was based on expectations of a rate hike this week, with the US dollar strengthened and gold prices falling as a result. While the greenback was up against all major currencies, gains are on shaky ground as long-term uncertainty remains. With analysts already favouring a slowdown in the Fed's rate hike cycle, a new poll suggesting a 40 percent risk of a US recession is not likely to change investor sentiment.
There was some good news, however, with applications for jobless benefits in the US falling to a 49-year low during the week. This should ease some of the pressure the Fed is likely to be feeling as they make their interest rate decision.
Economic slowdown in China
The latest data from China was disappointing, with Hong Kong stocks down 2 percent as economic data fell short of estimates. Industrial output rose by 5.4 percent over the year, which was down from 5.9 percent in October. A similar pattern could be seen with retail sales, which rose by 8.1 percent over the year compared to 8.6 percent in October and the forecast figure of 8.8 percent. While these growth rates might still seem strong, weaker than expected Chinese data always fuels fears of a global economic slowdown.
The situation in Asia
Physical demand for gold in Asian markets was also low this week, as discounts broaden in India and activity slows in China on weak economic data. As the world's second-biggest gold consumer, a subdued Indian market always puts downward pressure on the precious metal. Consumer premiums in China were also down over the week from a range of US$5-$7.40 to the more realistic US$5-$6.50 over the benchmark. Significant discounts were also being offered in Indian gold markets, and premiums in Singapore were also down compared to last week.