Gold trading outlook: futures extend moderate gains ahead of Fed meeting

Gold edged up for a fourth session on Tuesday but gains remained limited by the prospect of a sooner interest rate increase by the Federal Reserve, holding near a three-month low.

Comex gold for delivery in April was up 0.23% at $1 155.8 per troy ounce at 7:38 GMT, shifting in a daily range of $1 156.1 and $1 151.1. The precious metal gained 0.07% on Monday to $1 153.2. Although the metal is on a four-day winning streak, daily gains have been limited to 0.11% or less.

Feds two-day meeting is scheduled to begin later today, with both analysts and traders watching carefully for hints on the eventual rate hike, the first since 2006. Officials are expected to drop their “patient” approach towards the matter as a robust jobs report, released on March 6, outlined strength in the U.S. labor market and reignited speculations that the Fed will initiate a lift in borrowing costs sooner rather than later.

Weighting in favor of the hike was Fed President Richard Fishers speech last week when he outlined that a delay might expose the worlds largest economy to a risk of recession.

However, a report released on Monday showed that U.S. manufacturing production fell 0.2% versus expectations of a 0.1% gain in February, following a 0.3% revised fall in January.

During their meeting officials have to decide whether the economy has strengthened enough to handle a rate hike and whether they should drop their “patience” stance. The Fed had previously expressed concerns about the potential damage than an incorrectly timed increase in borrowing costs could deliver to the economy.

Additionally, inflation is still below the targeted level and Fed Chair Janet Yellen has previously warned that she wants to be “reasonably confident” that the metric is likely to reach its desired level before launching the increase in borrowing costs. Policy makers have targeted an inflation level of 2%, but the figure has been pressured by the plunge in oil prices.

An eventual increase of borrowing costs would dent demand for the precious metal as it offers returns only through price gains, while it would also boosts the dollar.

The U.S. dollar index for settlement in June was down 0.19% at 7:41 GMT to trade at 99.855, shifting in a daily range of 100.265 and 99.830. The U.S. currency gauge dropped 0.67% on Friday to 100.041.

“All but half a handful of economists expect the word ‘patient’ to be removed from its forward guidance,” analysts from IG Markets Ltd. wrote in an e-mailed note, cited by Bloomberg.

Once the “patient” phrase is removed, a hike could be undertaken at any following meeting, officials have warned. However, the broad market expects the central bank to make a move either in June or September.

Assets in the SPDR Gold Trust, the biggest bullion-backed ETF, dropped 0.28 tons on Friday to 750.67 tons, the lowest since late January, and remained the same on Monday.

Pivot Points

According to Binary Tribune’s daily analysis, April gold’s central pivot point on the Comex stands at $1 155.3. If the contract breaks its first resistance level at $1 161.2, next barrier will be at $1 169.3. In case the second key resistance is broken, the precious metal may attempt to advance to $1 175.2.

If the contract manages to breach the S1 level at $1 147.2, it will next see support at $1 141.3. With this second key support broken, movement to the downside may extend to $1 133.2.