Gold dips as stocks climb, but holds above $1,200 on dovish Fed

Reuters: Gold eased on Thursday as stocks rebounded but managed to hold above $1,200 an ounce on bets the Federal Reserve could slow the pace of US interest rate hikes.

Minutes from the Fed’s last policy meeting released on Wednesday showed that policymakers considered changing the US central bank’s planned interest rate hike path for 2016 on fears that a global slowdown and financial market selloff could hurt the US economy. 

Although most of the policymakers still expected to raise rates this year and even discussed a hike at the 26-27 January policy meeting, they were divided over how to interpret financial market volatility. 

A slower rate hike pace could boost demand for gold, which posted its third straight annual decline in 2015 on fears that higher rates would dent the appeal of the non-interest-paying asset.

Spot gold had eased 0.2% to $1,206.60 an ounce by 0718 GMT. It gained 0.7% on Wednesday, snapping a three-day losing streak. 

“With the uncertainty in the global economy and the relatively dovish Fed minutes that were out yesterday, gold prices will still be supported above $1,200,” said Barnabas Gan, an analyst at OCBC Bank in Singapore.

Gan said there was a greater possibility of a rate hike in the second half of this year rather than the first half, and gold prices could give back some gains then. 

Bank of America Merrill Lynch on Wednesday reduced its forecast for the number of times the Fed will raise rates this year to two from its earlier projection of three to four due to recent market turbulence. 

It would be “unwise” for the Fed to continue hiking rates given declining inflation expectations and recent equity market volatility, St. Louis Fed President James Bullard said on Wednesday in comments that mark a stark change of direction for one of the Fed’s more hawkish inflation foes. 

Bullard joins a growing list of Fed officials who have said this week that the U.S. central bank shouldn’t rush into further rate hikes.  

The comments should further support gold, which had rallied to a one-year high of $1,260.60 last week on the back of the turmoil in stock markets.

However, stocks have stabilised for the time being. Asian stocks rose on Thursday, while U.S. shares advanced for a third straight day on Wednesday as the jump in oil prices boosted energy shares.