Wednesday, December 23, 2015

Gold retains losses as dollar, oil eyed for cues

Gold drifted in a tight range on Wednesday, holding overnight losses, as investors awaited cues from the dollar and oil markets in thin pre-holiday trade.

Spot gold was little changed at $1,073.46 an ounce by 0040 GMT. The metal had eased 0.6 per cent on Tuesday, snapping a two-day rally.

Bullion failed to get a lift from a softer dollar, weak US housing data and a modest rebound in oil prices.

The dollar had slipped against a basket of currencies on Tuesday as more traders booked profits on bullish greenback bets following the Federal Reserve's interest rate increase last week and a steep drop in existing home sales in November.

A softer dollar would have typically sent greenback-denominated gold higher.

US home resales posted their sharpest drop in five years in November. Other data on Tuesday showed the US economy grew at a fairly healthy clip in the third quarter as strong consumer and business spending offset efforts by businesses to reduce an inventory glut.

Elsewhere, oil prices stabilised after earlier plumbing multi-year lows. Gold is positively co-related to oil as the metal is seen as a hedge against old-led inflation.

Trading is expected to be quiet as liquidity thins ahead of the Christmas holiday.

Japanese markets were closed on Wednesday.

Gold could see some sharp moves as dealers square their books in year-end trading. Short positions on COMEX gold are at a record high, according to recent US government data, a factor that could trigger some short-covering.

But investor sentiment towards gold remains largely bearish as its fate depends on the outlook of the dollar and the pace of the Fed's future rate hikes.

Several brokerages have predicted a drop below $1,000 an ounce next year. Assets of the top gold exchange-traded fund are near a seven-year low.

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