· Gold prices were little changed on Wednesday after falling 1% in the previous session, as investors evaluated the economic impact of the coronavirus outbreak in China and awaited a policy decision from the U.S. Federal Reserve due later in the day.
Spot gold was up 0.1% at $1,567.18 per ounce by 0646 GMT. U.S. gold futures fell 0.2% to $1,566.10.
The virus has caused panic in the market as it is spreading quickly and there is little known about it. It has claimed 132 lives so far and infected nearly 6,000 in China.
· “Any economic impact to China is unquantifiable at the moment. If we’re still in this situation in a month from now, we are going to see some growth issues, but at the moment we are just speculating,” said Jeffrey Halley, senior market analyst, OANDA.
If there is an escalation in the crisis, gold prices can breach the $1,600 an ounce level, he added.
Bullion is seen as a safe store of value during times of economic and political turmoil.
· Asian shares erased earlier gains as a spike in new cases of the virus sent Hong Kong stocks tumbling on resumption of trade after the Lunar New Year break.
A brief inversion of the U.S. Treasury yield curve on Tuesday for the first time since October left investors unsettled as it often precedes a recession.
· Meanwhile, the dollar held close to a near two-month high hit in the previous session, making gold expensive for holders of other currencies.
· Investors are now waiting for the U.S. central bank’s monetary policy statement due at 1900 GMT. Analysts and investors widely expect the Fed to stand pat on interest rates.
· “The main driver for gold this year will be strategic inflows as it will continue to be viewed as an attractive diversifier for investor portfolios in an environment where rates remain low,” UBS strategist Joni Teves said.
· The Fed is expected to make a slight increase on the interest it pays on excess reserves held at the central bank in a move, aimed at lifting the effective federal funds rate, currently near the bottom of its target range.
Lower interest rates reduce the opportunity cost of holding non-yielding bullion.
· Among other precious metals, palladium advanced 0.4% to $2,298.70 an ounce, while platinum rose 0.3% to $988.93.
· Silver rose 0.3% to $17.49, having dipped to its lowest since Dec. 23 at $17.35 earlier in the session.
· FX Street Gold Price Analysis: Bulls looking for a discount in $1560s
The price of gold has been found floundering between 1580 and the 1560s following a surge at the start of the year to the highest levels since March 2013 at $1,611. However, the divergence on the weekly chart between momentum and price is alarmingly and a break in price to the downside could be the trigger for a top for the medium term with a downside target of 1530 ahead of 1440/50. On the other hand, bulls will be looking for a dicount here and preying price holds up and corrects higher again.
· Daily FX: Gold Price Outlook Hinges on FOMC Forward Guidance
The price of gold consolidates going into the Federal Reserve’s first meeting for 2020, but it remains to be seen if the interest rate decision will spark a major reaction as the central bank is widely expected to keep the benchmark interest rate in its current threshold of 1.50% to 1.75%.
In turn, market participants are likely to pay increased attention to the forward guidance for monetary policy as the Federal Open Market Committee (FOMC) moves away from its rate easing cycle and endorses a wait-and-see approach after delivering three consecutive rate cuts in 2019.
With that said, the broader outlook for the price of gold remains constructive, with the reaction to the former-resistance zone around $1447 (38.2% expansion) to $1457 (100% expansion) helping to rule out the threat of a Head-and-Shoulders formation as the region acts as support.
Lack of momentum to test the yearly high ($1611) raises the risk for a larger pullback, with failure to break/close above the Fibonacci overlap around $1587 (61.8% retracement) to $1592 (50% expansion) raising the scope for a move towards the $1558 (38.2% expansion) to $1567 (161.8% expansion) region.
Reference: Reuters, FX Street
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