· Gold prices rose on Wednesday, extending gains from a 3% rise in the previous session as the U.S. Federal Reserve slashed its benchmark interest rate to cushion the economic impact from the fast-spreading coronavirus.
Spot gold gained 0.1% to $1,641.08 per ounce by 0625 GMT, having registered its biggest one-day percentage gain since 2016 on Tuesday. U.S. gold futures slipped 0.1% to $1,642.50 per ounce.
The Fed trimmed interest rates by 50 basis points on Tuesday in an emergency move to safeguard the world's largest economy from the impact of the epidemic.
· "Last night's momentum is still being carried on in the Asian session. But the rate cut is more likely priced in, so the upside (in gold) is limited for now," CMC Markets analyst Margaret Yang Yan said.
The rate cut was the U.S. central bank's first outside of a regularly scheduled policy meeting since 2008 at the height of the financial crisis.
However, the emergency cut didn't calm investor nerves as U.S. stock indexes closed nearly 3% lower overnight, while Asian shares wobbled on Wednesday.
· "If the Fed cuts rates too deep, it would give a very strong signal that we're in a crisis," CMC's Yan said, adding the Fed might maintain status quo in its March meeting and gauge the economy's performance before taking further steps.
Lower interest rates reduce the opportunity cost of holding non-yielding bullion.
The U.S. 10-year Treasury yields hovered near record lows, while the dollar held close to a two-month low touched on Tuesday.
Investors awaited the release of the U.S. ISM non-manufacturing PMI data and the Fed's Beige Book of economic condition later in the day.
· The gold market has discounted the fact that any data will come on the lower side and any impact from the ISM numbers will be temporary, said Jigar Trivedi, a commodities analyst at Anand Rathi Shares and Stock Brokers in Mumbai.
On the technical front, the immediate support is around $1,630 an ounce while the resistance lays around $1,660, he added.
· Gold Price Analysis: Rejected above $1,650 after biggest single-day gain since June 2016
Gold is currently trading at $1,643 per Oz, having hit a session high of $1,652 in early Asia.
The bid tone around the yellow metal has weakened amid the recovery in the US treasury yields. At press time, the US 10-year yield is trading at 0.983%, up seven basis points from the record low of 0.91% reached during Tuesday's Asian trading hours. The two-year yield has also recovered to 0.683% from the overnight low of 0.616%.
The pullback may be extended further as the hourly chart relative strength index (RSI) is reporting a bearish divergence.
That said, the bullish bias put forward by the descending trendline breakout on the 4-hour chart would weaken only if prices find acceptance under $1,630. Alternatively, a move above $1,652 would invalidate the bearish divergence of the RSI seen on the hourly chart and open the doors for resistance at $$1,660.
· Fed's surprise rate cut: what happens next to gold prices?
The Federal Reserve surprised the markets with an emergency 50 basis-point cut on Tuesday. Gold surged but the Dow Jones Industrial Average still sold off.
CPM Group’s managing partner Jeffrey Christian talks gold’s reaction to the move and what it could mean for prices going forward. “The Fed lived up to the expectations of the market because partly it had to,” Christian told Kitco News on the sidelines of the PDAC.
Gold prices rose on the news, but this movement is not out of the ordinary, Christian said.
“We’ve seen gold and silver prices rise sharply but they are within the band of what we’ve seen over the last week. We think that it is probably a one-time spike, he said.”
Christian added that any fiscal response may come too late, as stimulus would take up to six to eight months to take effect, by which time the coronavirus would likely already be contained.
· Among other precious metals, palladium fell 0.4% to $2,490.70 per ounce, while platinum was up 0.7% to $880.71. Silver rose 0.2% to $17.22 an ounce.
Demand for platinum from the auto industry will rise this year for the first time since 2016 but it won't be enough to offset a decline in investment buying, leaving the global market in surplus again, the World Platinum Investment Council said.
Reference: Reuters , FX Street, Kitco
Thai
Eng