Gold trading outlook: futures slip ahead of Fed decision

Gold remained near the lowest in more than four months on Wednesday as investors awaited the outcome of Feds policy meeting that may pave the way for a sooner interest rate hike.

Comex gold for delivery in April was down 0.17% at $1 146.2 per troy ounce at 7:43 GMT, shifting in a daily range of $1 152.1 and $1 144.9. The precious metal dropped 0.43% on Tuesday to $1 148.2, having previously fallen to its lower since November 7 at $1 141.6.

During the Feds two-day meeting, which began on Tuesday, policy makers are expected to discuss whether or not the U.S. economy is ready for higher borrowing costs. Fed Chair Janet Yellen had previously expressed concerns about the potential damage that an incorrectly timed hike could deal.

Although an increase in borrowing costs is unlikely during this meeting, the majority of analysts have projected that officials will drop their “patient” stance towards the matter.

Despite minor setbacks, a robust jobs report issued earlier this month outlined strength in the overall economy, providing confidence to policy makers to move forward with the planned rate hike.

Officials have warned before that once the “patient” phrase is removed, a boost to borrowing costs could be delivered at any following meeting. However, the prevailing market opinion is that the central bank will make a move either in June or September. An eventual boost to interest rates would curb demand for all non-interest-bearing assets, including gold, while boosting the dollar.

The U.S. dollar index for settlement in June was down 0.08% at 7:41 GMT to trade at 99.870, shifting in a daily range of 100.105 and 99.835. The U.S. currency gauge dropped 0.09% on Tuesday to 99.949.

However, policy makers may be worried that inflation remains below the targeted level of 2%. Cheap oil has pressured Feds preferred metric and reaching the desired level may prove to be a tall task for the worlds largest economy. Ms. Yellen has said that she wants to be “reasonably confident” that the metric will reach its targeted level before initiating the first rate hike since 2006.

Additionally, HSBC warned that inflation data may come below expectations and force policy makers to wait until September before they pull the trigger.

Although inflation is still low, Fed President Richard Fisher spoke in favor of a sooner rate lifting last week.

“The removal of the word “patient” may initially pressure gold prices, especially if it helps to further boost the dollar,” HSBC analyst James Steel told clients in a note, cited by Reuters.

“That said, if a rate rise does not occur in June or if inflation data does not move up to the 2 percent target level, then investor sentiment toward gold may change for the positive and prices may trade higher,” Mr. Steel added.

Assets in the SPDR Gold Trust, the biggest bullion-backed ETF, dropped 2.69 tons on Tuesday to 747.98 tons, the lowest since late January.

Pivot points

According to Binary Tribune’s daily analysis, April gold’s central pivot point on the Comex stands at $1 149.7. If the contract breaks its first resistance level at $1 157.8, next barrier will be at $1 167.4. In case the second key resistance is broken, the precious metal may attempt to advance to $1 175.5.

If the contract manages to breach the S1 level at $1 140.1, it will next see support at $1 132.0. With this second key support broken, movement to the downside may extend to $1 122.4.