Gold rebounded from a two-week low as investors weighed minutes from the Federal Reserve’s July meeting, which signaled further interest-rate hikes, but at a slower pace.
Bullion pared losses on Wednesday after the minutes were released, though still ended the day down. The transcript showed Fed officials saw the need to dial back the pace of rate increases at some point but also wanted to gauge how their monetary tightening was working toward curbing US inflation.
They also saw the risks of tightening more than necessary. Swaps tied to Fed policy meeting dates indicated lower odds of a 75-basis points hike next month as opposed to a half-point move.
Gold has recovered from a near 16-month low in July on bets the Fed will be less aggressive with rate hikes as the US economy faces headwinds. Still, demand isn’t being supported by investment through exchange-traded funds, with holdings tracked by Bloomberg dropping for 10 straight weeks.
“Our base case remains that safe-haven demand should fade further, assuming that the US economy does not slip into recession,” Carsten Menke, an analyst at Julius Baer Group Ltd., wrote in a note.
“The bull case remains a recession, as it should lead to a significant pick-up in safe-haven demand.”
Meanwhile, some geopolitical risks have reared up again as the US and Taiwan will start formal talks on a trade and economic initiative, following through on a long-planned promise to deepen ties amid opposition from China, and underpinning haven demand for bullion.
Spot gold rose 0,4 percent to US$1 76,54 an ounce by 11:27 a.m. in London, after dropping 0,8 percent on Wednesday. The Bloomberg Dollar Spot Index was little changed, holding recent gains. Silver was steady, while platinum and palladium rose. — Bloomberg.