Gold range-bound as focus shifts to Fed policy decision
· Gold traded in a narrow range on Wednesday as market participants awaited the U.S. Federal Reserve's monetary policy decision and developments around a coronavirus stimulus package in the world's largest economy.
· Spot gold was down 0.1% to $1,849.16 per ounce by 0642 GMT. U.S. gold futures eased 0.2% to $1,847.50.
· "Gold appears to be in a holding pattern as investors are waiting for the Fed," said Jeffrey Halley, a senior market analyst at OANDA.
· The U.S. central bank is expected to stand pat on policy when it announces its decision at 1900 GMT. Investors will be watching for comments from Fed Chairman Jerome Powell for clues on the state of the economy.
· "If Powell remains ultra-dovish and indicates they have no intention of tapering, that can boost gold up to $1,880, although if he sounds optimistic about the economic recovery, gold can touch near $1,800 levels," Halley said.
· Easy monetary policy adds pressure on government bond yields and benefits non-yielding gold.
· Also in focus was U.S. President Joe Biden's $1.9 trillion
stimulus plan, which has been met with objections from
Republicans over the price tag.
· "The new round of fiscal stimulus may not arrive before mid-March, which is later than what the market had expected...so eventually we may see a delayed and smaller stimulus, which
· is not good for gold," said DailyFX strategist Margaret Yang.
· Gold will trade range-bound between $1,810 and $1,870 in the near term, Yang said, adding that in the medium term, the economic recovery might push yields higher along with inflation,
· which would be bearish for bullion.
· Lending some support to gold were worries over a surge in global coronavirus cases, which surpassed 100 million, as countries struggle with vaccine shortfalls.
· Gold Price Analysis: XAU/USD trades with modest losses, just below $1850 level
Gold remained depressed through the early European session, albeit has managed to recover a bit from weekly lows and was last seen trading just below the $1850 level.
The precious metal added to the overnight losses and witnessed some follow-through selling for the second consecutive session on Wednesday. The downtick was exclusively sponsored by a modest pickup in the US dollar demand, which tends to undermine the dollar-denominated commodity.
The USD edged higher during the first half of the trading action on Wednesday amid doubts over the timing and the size of a new US economic stimulus package. That said, the prevalent cautious mood around the equity markets helped limit the downside for the safe-haven XAU/USD.
Fading hopes for rapid approval of the US stimulus plan comes amid growing market worries about the potential economic fallout from the continuous surge in coronavirus cases. Apart from this, escalating US-China tensions in the South China Sea further weighed on investors' sentiment.
The lower risk appetite was reinforced by a softer tone around the US Treasury bond yields, which extended some additional support to the non-yielding yellow metal. Market participants also seemed reluctant to place aggressive bets ahead of the FOMC monetary policy decision on Wednesday.
Heading into the key event risk, the release of US Durable Goods Orders data will be looked upon for some trading impetus. This, along with the broader market risk sentiment, US stimulus headlines and developments surrounding the coronavirus saga, might also influence the XAU/USD.
Nevertheless, traders are likely to wait for some strong follow-through selling before positioning for any further depreciating move. The XAU/USD, so far, has managed to defend a one-week-old ascending trend-line support, which if broken should pave the way for additional weakness.
· Gold Price Analysis: XAU/USD stuck within tight $1850-$1860 ranges ahead of key market events
It’s been a subdued session for spot gold prices (XAU/USD), which have traded within thin $1850-$1860 ranges throughout the entire day despite a softer US dollar. The buck was weighed in line with other safe-haven currencies and apparently also precious metals markets amid an improvement in the market’s appetite for risk given the latest positive vaccine updates. Meanwhile, bond market signals have not been very strong (note that movements in US real yields and inflation expectations are a key driver of precious metal price action). Ahead of the close of US trade, the precious metal trades around 0.2% or $3 lower on the day.
Driving the day
The positive turn in risk appetite, which seemed to keep a lid on any potential XAU/USD gains as a result of US dollar weakness, was seemingly spurred by an improvement in the tone of news regarding vaccines;
namely, Moderna and Pfizer announced that they are looking into Covid-19 booster shots (another shot to come a few months to a year after the initial two shots) that would specifically be targeted at maintaining/building immunity to variants of the virus such as that discovered in South Africa a few weeks ago. Meanwhile, the CFO of Johnson & Johnson (J&J) said earlier in the day that they expect to release Covid-19 vaccine trial data next week and that the company is very optimistic that they will be releasing a very robust data set. J&J’s vaccine is being touted as a “game-changer” in the vaccination race as it would only require one shot to acquire full immunity.
Bond market signals
While short-end US real yields remain at all-time lows (the 5-year TIPS yield currently trades at under -1.78%), long-end real yields saw modest upside (the 10-year TIPS yield moved higher by about 1bps to above -1.03% and the 30-year TIPS yield moved about 3bps higher back above -0.30%). Thus, 10 and 30-year inflation break-evens dropped back modest on Tuesday. However, both remain close to recent highs, both still comfortably above 2.0%. Note that rising real yields and falling inflation expectations are usually a negative for precious metals, though Tuesday’s moves were modest. A trend will likely need to reassert itself for bond markets to start having a material impact on precious metals markets again.
Coming up this week
Subdued gold price action is to be expected ahead of key risk events later this week; firstly, the FOMC release their latest monetary policy decision on Wednesday. The bank is likely to reiterate its ultra-dovish stance on policy and Powell is likely to continue to push back against the notion of an imminent tapering of the Fed’s asset purchase programme as he did when speaking earlier in the month.
The very next day, preliminary US Q4 2020 GDP numbers will be released and markets will get to see 1) how the US performed in 2020 as a whole relative to expectations and 2) what kind of economic momentum did the US economy carry into Q1 2021. With the latest round of stimulus only agreed at the end of Q4 2020, its positive impact will be felt in Q1 2021.
· Spot gold may fall to $1,818
Spot gold is poised to break a support at $1,840 per ounce, and fall to $1,818.
The metal has completed a bounce from the Jan. 18 low of $1,809.90.
The bounce was driven by a wave B, the second wave of a three-wave cycle from the Jan. 6 high of $1,959.01.
The third wave labelled C may have started. It is expected to reverse the wave B. Following its first failure to break $1,840, gold may succeed in its current attempt.
A break above $1,853 may lead to a gain to $1,864. On the daily chart, gold is testing a support at $1,841, the 38.2% projection level of a downward wave C from $1,959.
This support is almost identical to $1,840 (hourly chart). A break could open the way towards $1,805.
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· Silver fell 0.1% to $25.41 an ounce, platinum shed 0.7% to $1,091.08 and palladium eased 0.1% to $2,322.66.
Reference: Rueters, FXStreet
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