Gold heads for second weekly loss on US rate hike prospects

Gold prices maintained their gains in American trade, heading for the first daily gain in three days on short-covering, after hitting a four-week lower earlier, while demand climbs on the metal as a safe haven amid renewed North Korea tensions, but prices were nonetheless on track for the second weekly loss in a row, due to prospects of a third Federal Reserve rate hike in December. 

Gold prices rose 0.4% to $1,26.45 an ounce from the opening of $1,209.90, with an intraday high at $1,298.70, and a low at $1,290.90. 

Gold lost 0.8% yesterday, the second daily losses in a row, and hit a four-week trough at $1,288.11 an ounce on strong prospects of a December rate hike. 

Tensions flared anew between the United States and North Korea, especially with the talk war between US president Donald Trump and North Korea leader Kim Jong-un. 

Kim Jong said that North Korea will undertake the highest levels of countermeasures in history against the United States in response to the US president's threat to "totally destroy" North Korea, describing Trump's UN speech as "total unprecedented nonsense", with Trump responding on Twitter that Kim Jong is a madman who doesn't mind killing or starving his own people. 

South Korean media reported that North Korea's foreign affairs minister said that his country "will look into deploying an unprecedented Hydrogen test in the Pacific, noting it will be the first North Korean nuclear test outside its borders. 

The tensions hurt risk appetite in the markets and led Wall Street down for a second sessions as traders collect profits. 

Gold prices lost 1.8% so far this week, on track for the second weekly loss in a row as bets increase on a Fed rate hike before the year end. 

Fed policymakers voted to hold interest rates steady at below 1.2%, while still opening the door for a hike in December despite softening US inflation. 

Chances of a December Fed rate hike rose to 70% from 50% before the Federal Open Market Committee's meeting. 

The FOMC maintained its projections of three rate hikes in 2018, while revising downward its projection for long-term interest rates to 2.75% from 3.0%, while forecasting just two rate hikes in 2019 and one in 2020. 

The FOMC expects to start normalizing the balance sheet from October to cut down on high levels of debt and mortgage-backed securities held by the Federal Reserve, as all the members agreed on the principles of normalizing the policy through the steps detailed in the additional document submitted alongside the usual bank statement in this meeting. 

The Committee wants to cut its monetary holdings gradually by reinvesting them through the open market system, while expecting the treasury bill sales to reach $6 billion at the start of the process, while rising to $30 billion a month in 12 months.

As for mortgage-backed security sales, they will start at $4 billion and advance to $20 billion a month after a year of the process. 

Gold holdings at the SPDR Gold Trust, the world's largest gold-backed mutual fund, rose yesterday by 6.21 metric tonnes to a total of 852.24 metric tonnes, the highest since June 30.