Gold trading outlook: futures fall further hours before FED meeting

Gold fell for a fifth trading session on Tuesday, marking its biggest daily decrease so far this year amid plunging oil prices, as investors closely observe the Fed meetings outcome.

Comex gold for delivery in February dropped 0.75% to $1 197.90 per troy ounce by 07:53 GMT, having shifted in a daily range of $1 199.80-$1 194.10 an ounce. The precious metal fell 1.22% on Monday, but not before it dropped to $1 191.3, its lowest since December 8th.

The two-day US Federal Reserve meeting is scheduled to begin later today, when officials are expected to debate over whether or not to increase interest rates, which have been held near zero since 2008.

On its last meeting in October, Fed officials restated that they will keep borrowing costs at low rates for a “considerable time.” However, since then the US economy has significantly improved and more jobs than expected were created during the period.

US inflation is still below Feds targeted level and there are signs of weakness across Europe and Asia. On todays meeting policy makers have to decide whether to give the green light to an interest rate hike, despite those factors.

“Investors are closely watching the Fed’s tone and whether it will abandon its ‘considerable time’ language, which will be the clearest signal that loose monetary policy is coming to an end,” Huang Wei, an analyst at Huatai Great Wall Futures, wrote in a note today cited by Bloomberg. “Gold below $1,200 may lure some buyers.”

A potential increase of interest rates would lend support for the dollar and thus hurt the non-interest-bearing gold. In addition, typically, gold follows oil declines, including US crude, which dropped to its lowest since May 2009 on Tuesday.

The US dollar index for settlement in March fell 0.15% to 88.545 at 07:56 GMT, prices held in a daily range of 88.735 and 87.830. The US currency gauge gained 0.10% on Monday to 88.682. A stronger greenback makes dollar-denominated commodities more expensive for holders of foreign currencies and curbs their appeal as an alternative investment.

Traders and analysts are divided on their opinion about Feds decision, with the majority of them predicting that officials would not increase interest rates yet, including Paul Krugman, winner of the 2008’s Nobel Memorial Prize in Economic Sciences.

Edward Meir, an analysts at INTL FCStone, also says policy makers wold not change borrowing costs and they would rather wait and see “whether the U.S. economy will get caught in the undertow of slowing global growth.”

“If we are correct in our assessment, we should see the dollar weaken from here and give commodities a slight lift, so we likely would want to stay long gold going into the release, perilous as the short-term looks for the moment,” Mr. Meir said in a note cited by CNBC.

Assets in the SPDR Gold Trust, the biggest bullion-backed ETF, slid 2.39 tons to 723.36 tons on Monday, the first drop in five days.

Pivot Points

According to Binary Tribune’s daily analysis, February gold’s central pivot point on the Comex stands at $1 208.0. If the contract breaks its first resistance level at $1 224.7, next barrier will be at $1 241.7. In case the second key resistance is broken, the precious metal may attempt to advance to $1 258.4.

If the contract manages to breach the S1 level at $1 191.0, it will next see support at $1 174.3. With this second key support broken, movement to the downside may extend to $1 157.3.