Gold prices edged lower on Wednesday after US Federal Reserve chief Janet Yellen hinted at a hike in interest rates in an upcoming meeting of the central bank. Spot gold fell 0.2 percent to $1,225.96 per ounce at 0530 GMT, while US gold futures rose 0.1 percent to $1,227. “The focus is really on the US fiscal policy. And if that stokes up the inflation expectations, we expect gold to suffer and consolidate for a while,” said Richard Xu, a fund manager at China’s biggest gold exchange-traded fund, HuaAn Gold.
Xu added, however, that the fund still expects “gold will pick up momentum in the second half of the year.”
Gold is highly sensitive to rising US interest rates, which increase the opportunity cost of holding non-yielding bullion and boost the dollar. However, the underlying demand for bullion is still strong owing to critical uncertainties, said ANZ analyst Daniel Hynes.
Political risk from elections in Europe and worries over US President Donald Trump’s policies were seen supporting safe-haven appetite for the metal, the prices of which have risen about 10 percent after touching 10-month lows in December, when the Fed raised interest rates.
“This bodes well even if interest rates are raised in March,” Hynes added. The dollar index was mostly unchanged at 101.23, near the 3-1/2-week high of 101.38 hit on Tuesday following Yellen’s remarks.
Spot gold may break a support at $1,220 per ounce, according to Reuters technical analyst Wang Tao.
New York’s SPDR Gold Trust, the world’s largest physically-backed gold fund, said on Wednesday it has been certified as Shariah compliant, in the latest effort to spur demand for bullion from investors in majority-Muslim countries. SPDR holdings have risen over 5 percent so far this month. “We have seen lot of inflows in the recent weeks ... But, this is just a temporary thing,” said Xu of HuaAn Gold.
“People, especially in China, are opting for high turnover strategies. They come in and make profit and leave for other assets.”

Source: Arab News