Gold rose before a Federal Reserve meeting that’s likely to result in the first U.S. interest rate increase in almost a decade.
Bullion for immediate delivery gained as much as 0.5 percent to $1,066.55 an ounce and was at $1,065.36 at 4:43 p.m. in Singapore, according to Bloomberg generic pricing. Gold climbed 0.1 percent on Tuesday, after dropping on Monday to $1,058.95, the lowest since Dec. 4.
The metal is heading for a third annual drop as the focus remains on prospects for the start of higher rates, which damp its appeal as bullion doesn’t pay interest. The likelihood of higher rates is 78 percent, from 66 percent a month ago, futures data show. Fed Chair Janet Yellen has emphasized the bank will follow a gradual path after an initial move.
“Gold will be Fed-comment dependent -- if it is dovish, gold is up, if it is hawkish, gold is down,’ Helen Lau, an analyst at Argonaut Securities (Asia) Ltd. in Hong Kong, said by e-mail. Investors will “stay on the sidelines” before the meeting, Lau said.
A study of the impact of the start of rate-hike cycles on the gold price such as in 1976, 1986, 1994, and 2004 showed that it typically remained capped for one to two quarters, then lifts, according to Morgan Stanley.
The “start of the U.S. rate-hike cycle should ease trade anxiety, but actual inflation is needed for price upside” for gold, Morgan Stanley analysts including Tom Price and Joel Crane wrote in the bank’s quarterly metals report dated Dec. 15.
Assets in gold-backed exchange-traded products fell for a third day to 1,463.86 metric tons as of Tuesday, according to data compiled by Bloomberg. That’s the lowest level since February 2009.
Spot silver added 0.3 percent and platinum climbed 0.6 percent, while palladium fell 0.7 percent.