Gold prices are volatile ahead of the Fed Reserve meet

Any policy action, forecasts could impact yellow metal's safe-haven appeal

  
Gold bars are seen at the Kazakhstan's National Bank vault in Almaty, Kazakhstan, September 30, 2016.

Gold bars are seen at the Kazakhstan's National Bank vault in Almaty, Kazakhstan, September 30, 2016.

REUTERS/Mariya Gordeyeva/File Photo

The price of gold continued to face volatility on Wednesday as the US Federal Reserve meeting got underway. 

The Fed is expected to make an announcement later today (June 16) after holding two-day discussions, and any policy action could put a dent or prop up the yellow metal’s safe-haven appeal. 

“Should the Federal Reserve again reiterate its dovish stance and stick to their expansionary policy, it will be bullish for the metal,” Devesh Mamtani, chief market strategist at Century Financial, told Zawya. 

As of 2:45 pm (UAE time), spot gold was trading around $1,857 an ounce, down 0.6 percent from the previous session. It hit its highest level in several months last May due to a weaker US dollar and concerns about inflation. In the UAE, 18K gold was selling at 173 dirhams per gram, down from 176.75 dirhams last May 27. 

“Gold has dipped in June after erasing this year’s losses in May with the psychological zone of $1,900 acting as a strong resistance area for the metal,” said Mamtani. 

“[The] bullion’s retreat from an almost five-month high comes as investors assessed inflation pressures and possible responses by central banks.” 

Scaling back bond purchases 

Gold is considered a good hedge against inflation. However, concerns about a potential tapering off of bond purchases have weighed on the precious metal.  

“Besides, the strength in safe-haven dollar ahead of the [Fed] decision is also weighing on the dollar-denominated assets. Not to forget, the rebound in bitcoin above $40K also dented the metal’s appeal,” said Mamtani. 

“All in all, gold’s next directional move remains in the hands of Fed Chair Jerome Powell and his outlook on the economy, which will influence the US central bank’s next policy plan,” said Mamtani. “Nonetheless, volatility is expected to remain elevated in the metal ahead of the [Fed Reserve] decision… with support seen near the 200-day market average at $1,840 and resistance near $1,900. A break on either side will determine the next direction in gold.” 

Some analysts are expecting the Fed not to make any policy actions, but it could also project potential rate hike in 2023. 

“Fed officials will release a new set of policy and economic forecasts in which they could project interest-rate liftoff in 2023. The press conference will also be closely watched for signs that the Fed is getting uncomfortable with the current inflation hike,” said Saxo Bank in a note on Wednesday. 

“Key support [for gold] remains the 200-day moving average at $1,839, followed by $1,825, the 38.2 percent retracement of the rally from the April low.” 

(Reporting by Cleofe Maceda; editing by Seban Scaria) 

Cleofe.maceda@refinitiv.com 

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