Gold increased by $20 and posted third consecutive day of gains before the week ended. This came after the US Fed announced it will target a very low rate for federal funds. It pushed the US dollar down together with short-term yields.
High temporary rates are believed to be the nemesis of the precious metal since gold bars do not generate profits while storage is expensive. Hence, these commodities are not really the best way to preserve health as risk-free rates increase.
Likewise, mounting interim rates are beneficial for the US currency because holding the greenback turns out to be a more enticing proposition. A stronger note means investors need only fewer dollars to purchase the same volume of gold.
However, gold faces resistance at the levels of $1,205.80 and $1,204.70, according to traders based in Chicago. In addition, long-term basics do not look encouraging.
Some analysts believe the central bank’s pronouncement may be positive for the yellow metal temporarily although gold seems to be going down in the long-term.
Expectations of a rate increase will be the reason for gold’s losing run.
Meanwhile, gold came close to a three-week peak and was poised for a second weekly advance even as the recovering USD capped profits.
Spot gold moved up 0.05 percent ($1,201.50 per ounce) in listless trading and incurred its most significant daily increase since the middle of May.
Prices increased 1.8 percent which is the largest weekly increase in more than one month.
Gold futures for settlement in August had no considerable change at $1,201.90 per ounce.
Gold in the euro zone traded roughly nine percent lower compared to a near two-year high in January.
Bullion gained support from traders apprehensive over a crisis in Europe. European leaders held an emergency summit to help prevent a default by Greece after bank withdrawals went up.
Investor position was bearish with SPDR Gold Trust assets (gold-supported exchange traded funds) experiencing the lowest rates since 2008 and speculators augmenting short positions.
Physical demand for gold products in Asia was also lethargic due to the rigid price range and higher stock market outputs turned away consumers.
Prices in China’s Shanghai Gold Exchange declined to $2 per ounce in relation to the global price from a premium of $1 to $2.