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Inflation worries keep gold steady after Fed maintains stance

· Gold prices steadied after early falls on Thursday, as market participants weighed the U.S. Federal Reserve’s commitment to keep interest rates low for some time against likely higher inflation.

· Spot gold was flat at $1,737.89 per ounce by 0407 GMT. U.S. gold futures fell 0.1% to $1,739.20 per ounce.

· Fed officials are committed to supporting the economy until its recovery is more secure, minutes of the U.S. central bank’s most recent policy meeting released on Wednesday showed.

· “The Fed was very assuring about its stand on interest rates, although investors are not convinced,” said Michael McCarthy, chief market strategist at CMC Markets.

· “Investors are expecting the Fed will have to hike interest rates as early as January 2022 as it becomes a huge task once inflation starts going out of control.”

· Several policymakers at the Fed’s March 16-17 meeting indicated they thought interest rates might need to increase sooner than anticipated by the bulk of their colleagues, and perhaps as soon as next year, the minutes showed.

· Non-yielding gold tends to fall out of favor when interest rates rise, as it increases the opportunity cost of holding bullion.

· Recent economic data have indicated a faster turnaround from the pandemic impacts and boosted risk assets. U.S. stock futures nudged higher to hit a record on Thursday, weighing on gold’s safe-haven appeal.

· In the near term, gold has support at $1,727 and $1,720 levels, followed by $1,705, OANDA senior market analyst Jeffrey Halley said in a note.

· SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, said its holdings fell 0.35 tonne to 1,028.69 tonnes on Wednesday.

· Lending support to gold, the U.S. dollar tracked Treasury yields lower and traded near a more than two-week low versus major peers on Thursday.

· Gold Price Outlook: Edging Higher as USD Falls, Traders Eye Powell Speech

Gold prices erased early losses and traded modestly higher during Thursday’s APAC midday session after falling 0.41% a day ago. Selling pressure on the precious metal alleviated as the DXY US Dollar index eased gains and the 10-year Treasury yield fell despite improved risk appetite.

Last night’s FOMC meeting minutes underscored the Fed’s dovish stance in the wake of transitory inflation pressure. The central bank committed to maintain the current accommodative policy until the economy shows “substantial further progress” towards its full employment and inflation targets before considering tapering. The Fed intended to communicate well in advance of the time when progress could be judged “substantial enough to warrant a change in the pace of purchases”.

Asia-Pacific investors digested the Fed’s dovish rhetoric and embraced a ‘risk-on’ session, with equity indices marching higher in most of the regional markets. A reduced appetite for safety sent the US Dollar lower, buoying gold and platinum prices. Looking ahead, traders are waiting for a speech from the Fed Chair Jerome Powell on Thursday at a virtual IMF seminar, in which he will likely share his views on global recovery and the monetary policy outlook. The US weekly initial jobless claims data will also be closely eyed.

In the medium term, the prospects of a stronger economic recovery, alongside President Joe Biden’s fresh $2.25 trillion infrastructure spending plan, may continue to encourage investors to shift their capital into risk assets such as equities for yield and growth. Non-yielding precious metals appear lackluster against this backdrop, especially if real yields continue to rise.

The world’s largest gold ETF - SPDR Gold Trust (GLD) – saw continuous net capital outflows over the past few weeks. The number of GLD shares outstanding fell to 353.0 million on April 6th from a recent high of 407.1 million observed on January 4th, marking 54.1 million shares of decline. Gold prices have fallen by 11.8% during the same period. Gold prices and the number of outstanding GLD shares have exhibited a strong positive correlation of 0.87 over the past 12 months (chart below).

Gold prices are testing an immediate resistance level at US$ 1,744 – the 23.6% Fibonacci retracement. A successful attempt would probably intensify near term buying pressure and carve a path for price to challenge the next key resistance at US$ 1,785 (28.3% Fibonacci retracement). A failed attempt however, would lead to further consolidation within a range-bound condition between US$ 1,676 and 1,744. The primary trend remains bearish-biased, as suggested by the downward-sloped 50- and 100-day SMA lines, although the 20-day SMA seems to be edging up.The MACD indicator is trending higher beneath the neutral midpoint, suggesting that selling pressure is fading and momentum is tilted towards the upside.

· Gold Price Analysis: XAU/USD clings to gains near two-week tops, around $1,745-46 hurdle

Gold refreshed intraday tops during the early European session, with bulls making a fresh attempt to clear a strong barrier near the $1,745-46 region.

The optimistic outlook for a relatively faster US economic recovery from the pandemic remained well supported by the impressive pace of coronavirus vaccinations. This, along with US President Joe Biden's infrastructure spending plan, has been fueling speculations about an uptick in US inflation. This further raised doubts that the Fed will retain ultra-low interest rates for a longer period.

This, in turn, pushed bond yields higher, which along with the upbeat US economic outlook should help limit any meaningful USD corrective slide. Even from a technical perspective, the commodity's inability to break through the $1,745-46 supply zone makes it prudent to wait for some strong follow-through buying before positioning for an extension of the recent bounce from multi-month lows.

· Among other metals, silver fell 0.1% to $25.09 per ounce and palladium was down 0.3% to $2,614.98. Platinum rose 0.6% to $1,232.99.

Reference: DailyFX, FXSrteet