Gold eased on Monday after jumping 1% in the previous session as progress in U.S.-China trade talks limited further gains, and as caution set in ahead of this week’s U.S. Federal Reserve meeting.
Palladium meanwhile continued a record run linked to supply shortages to hit another all-time high.
Spot gold was down 0.1% at $1,503.52 per ounce, while U.S. gold futures were 0.1% higher at $1,506.80 per ounce.
Traders are watching for further clues on the outlook for monetary policy at the Fed’s Oct. 29-30 meeting, at which the U.S. central bank is widely expected to agree to cut its benchmark interest rates for the third time this year.
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According to CME Group’s FedWatch tool, there is a 90.9% chance for a 25 basis point rate cut.
While projections for further cuts are providing some support to gold, there is “definitely some caution” in the market, Saxo Bank commodity strategist Ole Hansen said.
“The fact that we’re seeing volatility being sent lower, stock markets at near record highs especially in United States – that’s reducing the need for gold, at least in the near term,” he said.
A retreat in European shares on Monday after five straight days of gains and a drip in the dollar index from a one-week high helped hold bullion steady.
U.S. and Chinese officials are “close to finalising” some parts of a trade agreement after high-level telephone discussions on Friday, the U.S. Trade Representative’s office and China’s Commerce Ministry said.
U.S. President Donald Trump last week said Washington was doing well in its trade negotiations with China and that China wants to make a deal “very badly”.
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“Gold remains supported by an expected Fed rate cut, but gains could be limited by ongoing trade talks and a probable EU 27 extension which quashes the no-deal Brexit risk,” AxiTrader market strategist Stephen Innes said in a note.
European Council President Donald Tusk said that the 27 countries that will remain in the European Union after Britain leaves agreed on Monday to accept London’s request for a Brexit extension until January 31, 2020.
Hedge funds and money managers raised their bullish positions in COMEX gold and silver contracts in the week to Oct. 22, data showed on Friday.
Among other precious metals, palladium rose 1.3% to $1,786.39 per ounce, having earlier hit a record high of $1,789.43.
The metal, used in vehicle exhaust systems to reduce harmful emissions, has climbed about 41% so far this year on a sustained supply crunch.
Silver was flat at $18.01 per ounce, while platinum was up 0.4% at $929.57 per ounce.
The Fed is scheduled to meet on Oct. 29 and Oct. 30, with traders seeing a 90.4% chance for a 25 basis point rate cut, according to CME Group’s FedWatch tool. The U.S. central bank has already lowered interest rates twice this year.
“Gains (if the Fed cut rates this week) may be limited as trade tensions are not as tense as they were over the summer,” AxiTrader market strategist Stephen Innes said in a note.
U.S. President Donald Trump last week said the U.S. was doing very well in its trade negotiations with China and that China wants to make a deal “very badly.”
The remarks boosted investors’ appetite for riskier assets, sending Asian shares to a three-month high on Monday.
Both U.S. and China have imposed a series of tit-for-tat tariffs over the past 15 months, stirring global recessionary fears and driving gold prices more than 17% higher this year, but the recent development has put a lid on gains.
However, NAB’s Sharma said “any development on the trade war front will just have an interim effect on gold.”
“The situation is far more complicated to be solved in a hurry.”
Gold prices were also being weighed by a strong dollar, which makes the metal expensive for buyers holding other currencies.
The dollar index .DXY, which measures the greenback against a basket of other currencies, was slightly up on Monday morning after rising nearly 0.6% last week.
Meanwhile, the European Union agreed on Friday to London’s request for a Brexit deadline extension but set no new departure date, giving Britain’s divided parliament time to decide on Prime Minister Boris Johnson’s call for a snap election.
