Gold steadies, higher U.S. rates expected to weigh

LONDON (Reuters) - Gold steadied on Monday as the dollar slipped, but higher interest rates in the United States weighing on investor demand and a weak physical market are expected to pressure prices of the precious metal.

Spot gold was up 0.2 percent at $1,243.07 an ounce at 1201 GMT, after marking the lowest since Dec. 12 at $1,236.58 on Friday. U.S. gold futures were 0.2 percent higher at $1,243.5 an ounce.

A lower U.S. currency makes dollar-denominated gold cheaper for holders of other currencies, which could boost demand.

The Federal Reserve last month raised its benchmark overnight lending rate 25 basis points to 1.75-2.0 percent. Expectations are for another two rate rises this year and three in 2019.

Gold does not earn any interest or dividends and costs money to store and insure.

“While interest rates were zero there was no real cost to holding gold, it was just like holding cash, now there is a cost,” said Matthew Turner, analyst at Macquarie.

“The lack of big compelling themes is a problem for gold, prices are very high compared to where they were before the GFC (great financial crisis) and investor demand isn’t there.”

The financial crisis escalated after U.S. investment bank Lehman Brothers filed for bankruptcy in Sept. 2008 when gold prices were around $900 an ounce.

Investors retreating from gold can be seen in the largest gold-backed exchange-traded-fund (ETF), New York’s SPDR Gold Trust, which has seen its holdings fall more than 8 percent since late April to below 26 million ounces.

Physical market demand in top consuming countries China and India is also weak, analysts say.

India’s gold imports fell for a sixth month in June to 44 tonnes as a drop in the rupee lifted local prices to a near 21-month high, curtailing demand.

“Indian and China retail consumption has been hindered by depreciating local FX,” Citi analysts said in a note.

“Investors may favor gold again, especially if trade friction rises further and becomes a more sizable threat to economic growth and to the decade long equity market bull run.”

Silver was down 0.1 percent at $15.77 an ounce, after hitting a seven-month low at $15.67 on Friday.

Palladium was unchanged $937.00 and platinum slipped 0.1 percent to $824.8 an ounce.

“Platinum market fundamentals are expected to remain structurally bearish during the second half of 2018,” Citi analysts said.

“Platinum mine producers, primarily South African, are performing strongly and expected to continue to do so. We also expect rising supply from autocatalyst scrap in 2018 and 2019.”