The Fed lowered interest rates for a second time this year in a 7-3 vote on Wednesday but signalled further cuts are unlikely as the labour market remains strong.
The cut was widely expected, but the split vote has raised some concern about predicting the future path of monetary policy.
· “Traders are disappointed by the divergence of future rate cut path and the market is unwinding expectations of a few more cuts in the months to come,” said Margaret Yang Yan, a market analyst at CMC Markets.
Lower interest rates reduce the opportunity cost of holding non-yielding gold, and weigh on the dollar.
· Spot gold inched 0.1% higher to $1,495.36 per ounce as of 0636 GMT, after falling as much as 1% on Wednesday. However, U.S. gold futures were down 0.8% at $1,503.
Central banks globally are facing increasing pressure to dole out monetary support for flagging economies as the U.S.-China trade dispute hits global economic growth.
· “Gold looks vulnerable. If the Fed is right to proceed with caution – meaning the global environment is not as dire as stimulus-hungry markets seem to envision – that implies less scope for overall easing,” said Ilya Spivak, a senior currency strategist at DailyFx.
A close below $1,480 would set the stage for a retest of the $1,400 level initially and may then pave the way for a deeper pullback, he said.
· Meanwhile, the Bank of Japan kept monetary policy steady but said it would re-examine economic and price developments more thoroughly at its next policy meeting, amid growing risks to the country’s fragile economic recovery.
· Spot gold is poised to break a support at $1,488 per ounce and fall to the next support at $1,446, according to Reuters technical analyst Wang Tao.
The long wicks attached to Wednesday's candle represent indecision in the market place. Also, Gold remains trapped in a sideways channel, as seen in the 4-hour chart.
The focus, therefore, is on today's close. Acceptance below $1,483 would imply a continuation of the sell-off from recent highs above $1,550 and could yield a drop to $1,450.
That bearish case, however, would weaken if the 50-day moving average, currently lined up near $1,482 proves a tough nut to crack.
On the other hand, a close above Wednesday's high of $1,511 would imply bullish reversal and could invite stronger buying pressure, possibly leading to a retest of $1,530.
· Among other precious metals, silver dipped slightly to $17.72, and platinum and palladium were both barely changed at $930.34 and $1,590.79 respectively.
Reference: Reuters, FX Street
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