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Gold steady, investors weigh U.S. rate moves against fiscal outlook

By Zandi Shabalala
Chains made of several kinds of 58,5 percent pure gold are on display at the jewelry department of the Krastsvetmet non-ferrous metals plant, one of the world's largest producers in the precious metals industry, in the Siberian city of Krasnoyarsk, Russia, December 14, 2016. REUTERS/Ilya Naymushin

By Zandi Shabalala

LONDON (Reuters) - Gold prices were steady on Thursday as investors weighed the impact of an expected rise U.S. interest rates against uncertainty about the direction of U.S. fiscal policy.

Gold is highly exposed to interest rates and returns on other assets, as rising rates lift the opportunity cost of holding non-yielding bullion.

Spot gold was flat at $1,278.10 per ounce at 1100 GMT, after touching a 3-1/2-week high of $1,289.09 on Wednesday.

U.S. gold futures for December delivery were also barely changed at $1,278.

Gold has traded in a tight range of about $24 in November.

Tom Kendall, ICBC Standard Bank precious metals strategist, said gold was stuck in a range with the prospect of a rise in U.S. interest rates exerting pressure, while uncertainty about the direction of U.S. fiscal policy offered support.

"The two are kind of pushing and pulling on global yields and on the gold price," he said.

Traders see a 96.7 percent chance the U.S Federal Reserve will raise rates at its Dec. 13 meeting, CME Group's FedWatch showed. It would be the Fed's third rate rise this year.

At the same time, the U.S. Senate and House are considering tax cuts proposed by President Donald Trump's administration.

In economic news, underlying U.S. consumer prices increased in October, strengthening the view that a recent disinflationary trend worrying the Fed probably had ended.

Veteran Fed policymaker Eric Rosengren said on Wednesday that falling unemployment and sustained growth meant the economy had accelerated beyond a sustainable level so the Fed should continue raising rates.

Another Fed policymaker, Charles Evans, said he would go with an open mind to next month's meeting.

"It is perhaps best to remain sidelined for now, as the gold complex seems to be trapped within a relatively tight trading range and has yet to assert a meaningful direction," INTL FCStone analyst Edward Meir said in a note.

In physical demand, a note by BMI Research expected China's gold production growth to slow over the years to 2026, on the back of depleting reserves and rising production costs.

"Undervalued overseas companies faced with debt and credit crunches will incentivise more overseas investment by Chinese gold miners," BMI Research added.

Meanwhile, world share prices gained as investors hunted for bargains after Europe's longest losing streak of the year and the worst run since March for top global indices.

In other precious metals, palladium broke a five-session losing streak, rising 0.4 percent at $988 an ounce, after touching a two-week low on Wednesday.

Silver gained 0.4 percent at $17 per ounce and platinum slipped 0.3 percent to $928.70.

(Additional reporting by Vijaykumar Vedala in Bengaluru; Editing by Edmund Blair)