Gold Posts Third Straight Gain Ahead of Fed Policy Decision

(Bloomberg) -- Gold posted a third straight gain before the conclusion of the Federal Reserve meeting where policy makers are widely expected to cut interest rates Wednesday.

The Fed meeting comes amid increased volatility in the U.S. money markets that raises the odds for the central bank to expand its balance sheet. From 2008 to 2011, the Fed bought $2.3 trillion of debt, sending gold to a record that year.

Bullion prices also advanced as investors weighed the impact of President Donald Trump’s plan to expand sanctions on Iran. The metal has risen in the past two sessions after an attack on critical oil facilities in Saudi Arabia that the kingdom said was “unquestionably” sponsored by Iran.

Gold surged to a six-year high earlier this month as a persistent trade war between the U.S. and China slowed global growth, prompting central banks to ease policy. The Fed delivered its firstcut in borrowing costs in more than a decade in July, casting that move as a “mid-cycle adjustment.” Investors are now waiting to see if policy makers pivot toward a more sustained run of reductions, potentially aiding non-interest bearing bullion.

If equities fall the way they did after the Fed cut in July, “gold stands to visit the next stair-step resistance at about $1,600,” Bloomberg Intelligence commodity strategist Mike McGlone said.

Gold futures for December delivery settled 0.2% higher at $1,515.80 an ounce at 1:31 p.m. on the Comex in New York, after slipping as much as 0.4% earlier. Silver futures fell 1.2% on the Comex, while platinum and palladium declined on the New York Mercantile Exchange.

After the Fed’s session, a slew of other top central bank meetings follow as the Bank of England, Bank of Japan and Swiss National Bank all deliver decisions on Thursday. Last week, the European Central Bank eased policy.

Most investors expect that the Fed will pare borrowing costs by a quarter percentage point, matching the scale of the year’s initial cut. Citigroup Inc. has said U.S. rates will eventually be reduced to zero, sending bullion to a record.

Ahead of this week’s meeting, the Fed jumped into U.S. money markets to inject cash to quell a spike in short-term rates. The central bank returned on Wednesday to offer another $75 billion of cash.

Continued problems in the U.S. repo market are “driving short-term rates substantially higher and thereby raising the pressure for the Fed having to do more than just cutting rates by a quarter percent later today,” Ole Hansen, head of commodity strategy at Saxo Bank, said by phone Wednesday. “Anything that supports lower yields, that would also support gold. I think that is the focus going into the meeting.”

--With assistance from Swansy Afonso and Elena Mazneva.

To contact the reporters on this story: Jake Lloyd-Smith in Singapore at jlloydsmith@bloomberg.net;Krystal Chia in Singapore at kchia48@bloomberg.net;Justina Vasquez in New York at jvasquez57@bloomberg.net

To contact the editors responsible for this story: Luzi Ann Javier at ljavier@bloomberg.net, Joe Richter

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