Gold trading outlook: futures slide before Fed decision

Gold fell on Wednesday as investors weighed the possibility for an interest rate increase as an outcome from the Federal Reserves two-day policy meeting.

Comex gold for delivery in February slid 0.36% to $1 287.1 per troy ounce by 07:46 GMT, shifting in a daily range of $1 293.3 – $1 286.6. The precious metal rose 0.96% on Tuesday to $1 291.7, but not before it touched $1 272.0, its lowest since January 19.

Later on Wednesday the Federal Open Market Committee is due to release a statement, including its decision on whether to initiate the first interest rate hike in almost ten years. The worlds largest economy has been improving through the past year and the outlook remains positive for 2015 as well, despite global growth concerns.

The International Monetary Fund reduced it forecasts for global growth by 0.3% to 3.5% earlier this month. According to the organization most major economies will experience a slowdown in growth, excluding the US.

An eventual rate hike will most likely dull demand for non-interest-bearing assets, including gold. However, inflation in the country is still below the Fed targeted level of 2%, pressured by plunging oil prices, which may trigger a more cautious approach.

The US dollar index for settlement in March was up 0.09% at 94.335 at 07:48 GMT, holding in a daily range of 94.605-94.260. The US currency gauge fell 0.91% on Tuesday to 94.250. A stronger greenback makes dollar-denominated commodities more expensive for holders of foreign currencies and curbs their appeal as an alternative investment, and vice versa.

“I think itll be mostly a non-event. The Fed will probably stick to the status quo and if that proves to be true then gold should continue to hover between $1,270 and $1,290 in the near term,” said Howie Lee, investment analyst at Phillip Futures, cited by CNBC. Mr. Lee added that policy makers would most likely increase interest rates by June.

Gold is up around 9% so far this month, as global growth concern, spurred by the International Monetary Fund’s decision to cut its global growth projections, and the launch of a quantitative easing program from the European Central Bank have pushed gold traders to seek the safety of the metal.

Additionally, the yellow metal was boosted by instability in European markets, caused by worries that Greece may exit the 19-member zone.

However, the outlook for the precious metal remains grim, according to a survey by Reuters gold prices are expected to fall during 2015, marking their third year of declines. Major banks, including Barclays, UBS Goldman Sachs and Societe Generale, are also projecting lower prices for the metal.

Despite the disappointing forecasts, Mr. Lee does not expect prices to drop bellow $1 250 in the short term as China, the biggest gold consumer in the world, supports the metal ahead of its Lunar New Year.

China celebrates the holiday on February 19 and 20, when people exchange gold gifts among themselves for good luck. Demand is expected to stay strong at least until the end of the celebrations.

Assets in the SPDR Gold Trust, the biggest bullion-backed ETF, climbed 9.26 tons on Tuesday to 752.70 tons. Changes in holdings typically move gold prices in the same direction.

Pivot Points

According to Binary Tribune’s daily analysis, February gold’s central pivot point on the Comex stands at $1 287.0. If the contract breaks its first resistance level at $1 302.1, next barrier will be at $1 312.4. In case the second key resistance is broken, the precious metal may attempt to advance to $1 327.5.

If the contract manages to breach the S1 level at $1 276.7, it will next see support at $1 261.6. With this second key support broken, movement to the downside may extend to $1 251.3.