Gold rises but investors stay cautious about ‘hawkish’ Fed tone

Gold edged higher on Tuesday, even as investors pulled back slightly on U.S. rate cut bets, reflecting caution that the Federal Reserve could strike a more hawkish tone on next year’s monetary easing at its upcoming policy meeting.

FUNDAMENTALS

* Spot gold rose 0.1% to $4,194.83 per ounce as of 0146 GMT.

* U.S. gold futures for December delivery rose 0.2% to $4,223.60 per ounce.

* The benchmark U.S. 10-year Treasury yields rose to a 2-1/2-month peak on Monday, with yields accelerating to the upside after a powerful earthquake hit Japan and as investors braced for the Fed’s next policy announcement.

* Analysts expect the Fed to make a “hawkish cut”, where the language of the statement, median forecasts and Chair Jerome Powell’s press conference point to a higher bar for further rate reduction. * Data on Friday did not change the bets for a Fed policy easing. Inflation, as measured by the Personal Consumption Expenditures (PCE) Price Index, was in line with expectations, while U.S. consumer sentiment seen improving in December. * Last week, private payroll data showed the sharpest decline in more than 2-1/2 years in November, while, U.S. unemployment benefit claims dropped to 191,000 for the week ended November 29, a more than three-year low. * The market is pricing in an 87% chance of a 25-basis-point rate cut, down from 90% on Monday, at the U.S. central bank’s policy meeting on December 9-10, as per CME’s FedWatch Tool.

* Lower interest rates tend to favour non-yielding assets such as gold.

* Morgan Stanley sees further upside in gold, driven by a falling U.S. dollar, strong ETF buying, continued central bank purchases and safe-haven demand.

* Elsewhere, silver fell 0.1% to $58.05 per ounce, platinum gained 0.4% to $1,649.46, while palladium rose 0.6% at $1,473.32.