Gold prices are expected to remain within their current range next week, respondents to the S&P Global Platts Gold Sentiment Survey said Friday, and could even climb if there is a much-anticipated rise in US interest rates.
Gold was trading around $1,170/oz Friday morning, largely unchanged on the week, ending a run of four straight weeks of losses that has wiped 10% off its value.
The price slumped to a 10-month low of $1,162/oz Monday as the dollar jumped to a 20-month high against the euro following the Italian referendum result last weekend, but has since recovered.
A strong dollar, increasing bond yields and increasing likelihood of the first rise in US interest rates for a year has kept pressure on the metal in recent weeks.
The US Federal Reserve will meet Wednesday and is widely expected to raise interest rates by 25 basis points to 0.75%, only its second rate rise in nearly a decade, following a similar lift last December.
"How the market expects the interest rate path to develop in future is even more relevant to the performance of the gold price," Commerzbank said in a note Friday.
"There is growing consensus on the market that the US key rate will continue to rise, which is generally likely to cause the US dollar to appreciate and bond yields to climb," it added.
With the opportunity cost of gold as a non-yielding asset increasing as interest rates rise, demand for the metal is expected to diminish in a tightening interest rate environment.
According to CME Fed Fund Futures overnight, the probability of a further rise is just over 50% by June next year, climbing to 60% by September and roughly 70% by November.
Yet short term, some respondents to the Platts survey said prices could increase after the Fed announcement, once a level of uncertainty is removed, however small.
"Technically, gold has held its own this week and didn't fall through key selling levels. So perhaps there is hope yet," one analyst said.
"At least with the lift out the way, selling pressure may come off and downside should be limited," a second said.
But respondents all agreed investment and physical demand are expected to remain low.
According to SPDR Gold Shares data Friday, the fund is down over 23 mt since the start of December, following outflows of around 60 mt in November.
It means the fund, the world's largest gold-backed ETF, has given back all its inflows since May, down 11% from its August peak to around 860 mt.
At the same time, physical demand continues to struggle, especially in the world's number two consumer, India.
Local dealers have reported moderate to poor sales this week in India, with prices at a discount to the international price of $2-$4/oz, unchanged on the previous week.
The industry continues to struggle with weak demand in an uncertain regulatory environment, with buying far below typical for this time of year -- the middle of the Indian wedding season.
Moves by the Chinese government to curb gold imports, meanwhile, have seen Chinese premiums above $20/oz.
In an attempt to shore up its currency, Chinese authorities have attempted to limit capital leaving the country, including reports of banks being denied approval to import gold.
Overall, respondents expect prices to remain within the same range of $1,160-$1,180/oz, unchanged from last week.
