Gold prices bounce back after October loss as Fed conclusion awaits

01-Nov (MarketWatch) — Gold futures on Tuesday snapped back from a tough October, while the dollar dipped, as the Federal Reserve was set to settle in for a two-day meeting.

That meeting, while not expected to produce an interest-rate hike, could shed light on the chances for such a move by the end of the year, a potentially gold-negative development.

…Gold and silver gained as the U.S. dollar lost ground versus major rivals. That left the ICE dollar index, a measure of the U.S. unit against a basket of six major rivals, down 0.1% at 98.23. A stronger dollar can weigh on commodities priced in the currency, including precious metals, by making them more expensive to users of other currencies. A weaker dollar, then, tends to give gold and silver a boost.

U.S. stocks were poised to rebound Tuesday after strong Chinese manufacturing data instilled more confidence in global growth and sent global stock markets higher, dulling demand for haven gold.

Gold trading could churn between now and Wednesday’s Fed conclusion.

“The Fed has tried to convey that November is a live meeting, but it’s dead on arrival. Markets see almost no chance of a rate hike, and we put the odds at 5%,” said Ryan Sweet, economist at Moody’s Economy.com, in a commentary. “The meeting is the week before the election; raising rates then would break from past practice. Since the Fed began announcing changes to the target fed funds rate in 1994, only once, in 2004, has it raised rates at the meeting before a presidential election.”

“We expect the Federal Open Market Committee to strengthen the forward guidance in its November post-meeting statement to signal that a rate hike is likely in December,” Sweet added.

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PG View: I would say that a December rate hike is more likely ‘a potentially gold-positive development’ based on the yellow metal’s reaction to last December’s rate hike.