Gold futures on the COMEX division of the New York Mercantile Exchange rose on Wednesday as geopolitical instability drove investors to the precious metal.
The most active gold contract for February delivery rose 13.5 U. S. dollars, or 1.25 percent, to settle at 1,091.90 dollars per ounce. The sudden announcement of a successful hydrogen bomb test by the Democratic People's Republic of Korea (DPRK) spooked investors, as well as continued tension in the Middle East over Saudi Arabia' s execution of a cleric, driving investors to gold as a safe haven.
Gold was put under pressure as the U.S. Dollar Index, a measure of the dollar against a basket of major currencies, fell by 0.08 to 99.26 as of 1815 GMT. The precious metal was prevented from rising further as a report released by U.S.-based Automated Data Processing showed optimism for the U.S. jobs market, with the all-important monthly report to be released on Friday.
The report showed an expectation for an increase of 257,000 which is far better than expected. Analysts believe that a jobs report this strong may trigger the Federal Reserve to hike its key interest rate at its March FOMC meeting, but caution that the Friday labor report could still fall within expectations.
The market remains unsure of when the next rate hike, from a 0. 50 rate to a 0.75 rate will occur. The CMEGroup's Fedwatch tool shows an implied probability indicating that the market believes that the Fed may raise rates from 0.50 to 0.75 during the March Federal Open Market Committee (FOMC) meeting.
Analysts believe the goal of the Fed is to soak up some of the banks' 2.5 trillion U.S. dollars of excess reserves as the U.S. economy begins to recover. Banks become more willing to take risks in a bullish economy, and as a result could potentially release some of their excessive reserves, flooding the economy with cash, causing inflation.
Minutes for December's FOMC meeting, released on Tuesday, indicated that the Fed is still concerned over inflation levels, and will likely tighten policy very gradually. Silver for March delivery rose 0.5 cents, or 0.04 percent, to close at 13.976 dollars per ounce. Platinum for April delivery fell 15 dollars, or 1.69 percent, to close at 875.00 dollars per ounce.
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