Gold hits 3-week low; Fed rate hike outlook weighs

Andrew Cummings
September 23, 2017

Global stock markets were mixed Thursday as investors digested the latest statements from the U.S. Federal Reserve, which indicated that it remains on course to raise interest rates on several occasions over the coming year.

The U.S. central bank is expected to release its latest policy statement at 2 p.m. (1800 GMT) after a two-day meeting where investors expected policymakers would decide to embark on a reduction of the Fed's $4.5 trillion balance sheet in October. Meanwhile, traders reassessed the possibility of another USA rate increase, they awaited clues on whether European Central Bank would slow its bond purchases later this year due to an improving economy.

On Wednesday, the Fed is expected to keep its benchmark interest rate unchanged between 1% and 1.25% and announce the process for unwinding its massive balance sheet.

U.S. gold futures for December delivery lost 1 per cent to $1,302.10 an ounce.

The dollar on Thursday extended gains and rose 0.2 percent versus the yen. Wall Street was poised for a similarly flat opening with Dow futures and the broader S&P 500 futures unchanged.

The kiwi was trading at 72.78 U.S. cents as at 5pm in Wellington from 72.57 cents at the start of the day and from 73.12 cents late yesterday.

-Financial shares rose 0.6 percent while shares in consumer staple producers fell 0.9 percent and tech shares lost 0.5 percent. Meanwhile, the two-year Treasury note yielded as high as 1.451 percent, touching its highest levels since 2008.

-The S&P 500 index rose 0.1 percent to 2,508.19 as of 4 NY.

Interest rate futures traders are now pricing in about a 70 percent chance of a December Fed rate hike, up from above 50 percent prior to the Fed meeting, according to CME's FedWatch tool. Higher rates in turn boosts the value of the dollar, which has an inverse correlation to the gold price. The Fed raised rates by a quarter point in March and June and its current target range is now at 1.00%-1.25%.

Mitsubishi UFJ Financial Group soared 4.0 percent, while Sumitomo Mitsui Financial Group climbed 3.1 percent, and Nomura Holdings rose 2.8 percent.

Elsewhere, Spanish assets showed resilience even as the government cracked down on an illegal separatist referendum planned in its largest economic region. the New Zealand dollar jumped after a poll put the ruling National Party back in the lead ahead of the main opposition Labour Party ahead of this weekend's election.

Brent crude was up 0.1 percent at $56.50 a barrel after reaching a five-month high of $56.53 overnight.

South Korean shares dipped 0.1 percent, against a backdrop of caution ahead of the Fed meeting as well as continuing tensions on the Korean peninsula.

Brent crude futures last stood at $55.83, down around one per cent from late U.S. levels as United States benchmark West Texas Intermediate (WTI) fell to $50.14.

"New Zealand might be set for a market-friendly election result but the bigger picture is being dictated by the FOMC", said Cameron Bagrie, chief economist at ANZ Bank New Zealand.

US crude CLcv1 fell 43 cents to settle at $49.48 a barrel, while Brent LCOcv1 declined 34 cents to settle at $55.14.

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