Gold prices steady as dollar gains offset global growth fears

Gold held steady on Wednesday as concerns over prolonged economic weakness due to the coronavirus outbreak countered a strength in US dollar after the Federal Reserve dashed hopes of sub-zero interest rates.

Spot gold was mostly unchanged at $1,715.03 per ounce by 0916 GMT. US gold futures rose 0.5 per cent to $1,724 per ounce.

“Jerome Powell painted a dire picture of the economy in his speech yesterday. Unprecedented uncertainty, higher risks should typically provide fuel to the gold market but it didn’t,” Julius Baer analyst Carsten Menke said.

“Maybe because he dismissed the option of negative interest rates. The lack of willingness from the Fed to use these instruments cooled the gold market,” he added.

Powell vowed to use the central bank’s power as needed, and called for additional fiscal spending to help the virus-hit economy. Negative interest rates, he said, are “not something that we are considering”.

Gold, which pays no interest of its own, tends to benefit when interest rates fall as this reduces the opportunity cost of holding bullion.

Powell’s comments sent investors moving to the relative safety of the greenback, with the dollar index rising to a near three-week high, while US stocks posted their biggest two-day fall in more than three weeks.

Markets’ focus now shifts to the weekly US jobless claims data due at 1230 GMT for more clarity about the economic outlook.

The pandemic, which has battered global growth, has prompted central banks around the world to roll out massive fiscal and monetary support to limit economic damage.

Gold tends to benefit from widespread stimulus measures as it is often seen as a hedge against inflation and currency debasement.

Indicative of sentiment, SPDR Gold Trust holdings, the world’s largest gold-backed exchange-traded fund (ETF), jumped 0.8 per cent to a fresh seven-year high of 1,092.14 tonnes on Wednesday.

“While ETF investors with a longer-term view have continued to accumulate gold, hedge funds have cut bullish bets to an 11-month low,” Saxo Bank analyst Ole Hansen said.

“A sustained breakout could force these funds to get down from the fence and back into the market. If realized it could be the driver behind the next move higher.”

Among other precious metals, palladium edged up 0.1 per cent to $1,819.73 an ounce, after having fallen 2.3 per cent in the last session.

Platinum rose 0.6 per cent to $761.53 per ounce, while silver shed 0.7 per cent to $15.53.