Gold futures were modestly higher on Thursday as a rally in the dollar abated on the heels of minutes from the Federal Reserve, which signaled that a majority of its members favored a rate hike as early as December.
December gold GCZ5, +0.12% picked up $1.60, or 0.2%, to trade at $1,070.30 an ounce, after settling at $1,068.70/oz., barely higher. The metal settled half an hour before the minutes of the Fed were released at 2 p.m. Eastern on Wednesday.
Gold watchers said that investors in the yellow metal have been pricing in a rate hike in December and that a confirmation of the Fed’s intent to normalize monetary policy in the minutes of its October policy-setting meeting may have offered the metal some room to rise. A rate can be a negative to assets that don’t offer interest.
Read: Fed minutes show majority willing to raise interest rates in December
A slowdown in the rally of the greenback, which has climbed in anticipation of a near-term rate hike, also has given a boost to dollar-denominated gold. The ICE U.S. Dollar Index DXY, -0.22% which measures the buck’s strength against a basket of six rival currencies, was off 0.3% early Thursday.
A decision by Japan’s central bank to keep its interest rates steady also pushed the dollar lower, reining in bullish bets in favor of the buck.
A weaker dollar can provide a lift to commodities priced in the currency, making them relatively cheaper to investors using other monetary units.
Some traders said that a bounce in gold and the weakness in the dollar are a function of both of those assets being aggressively traded by investors.
The “dollar weakness is being chalked up to the October [Fed] minutes’ emphasis on a slow path of policy normalization,” wrote analysts at Credit Suisse in a Thursday research note.
In the case of gold being aggressively sold, Colin Cieszynski, senior market analyst at CMC Markets, told MarketWatch.
“Gold and [the U.S. dollar] have been more aggressively pricing in a rate hike than other markets so I think we are getting common ‘enter trade on rumour exit on the news’ type of response,” said Cieszynski.
That said, Cieszynski warned that gold could see another significant leg lower before the dust settles. “Gold has been getting oversold so its due for a trading bounce in the near term, but I still think it could be drawn toward a retest of $1,000[an ounce] before its all over.”
Meanwhile, December silver SIZ5, +0.17% gained 2 cents, or 0.1%, to trade at $14.10 an ounce.
