Gold trading outlook: futures rise on Fed outcome

Gold edged up on Thursday to trade near its highest in nearly two weeks after the Federal Reserve outlined that interest rates in the worlds largest economy would grow slower than previously estimated.

Comex gold for delivery in April was up 1.34% at $1 166.7 per troy ounce at 7:52 GMT, shifting in a daily range of $1 165.8 and $1 177.0, its highest since March 6. The precious metal gained 0.27% on Wednesday to $1 151.3.

As expected, policy makers dropped their “patient” stance on Wednesday, paving the way for the first boost to borrowing costs since 2006. However, Fed Chair Janet Yellen warned that removing the phrase did not necessarily mean that interest rates would be lifted in June. Fed officials revised lower their assessment of the U.S. economy and inflation estimates, outlining that the central bank may take longer to boost interest rates.

Previously the broad market had expected the central bank to make a move either in June or September, but after the conclusion of the two-day meeting, expectations have shifted towards September.

The central bank restated that it wont initiate a rate hike until its reasonably confident that inflation will rise to desired levels. Feds preferred metric has remained below its targeted level of 2%, pressured by low oil prices amid record supply levels. Additionally, policy makers would like to see a further improvement in the job market.

The Fed cut its outlook for the federal funds rate and outlined worries about the robust dollar, which was up around 8% for the year against a basket of currencies. However, the U.S. currency took a hit after Feds announcement. Policy makers projected the federal fund rate to finish the year at 0.625%, lower then their December estimate of 1.125%.

“The prospect of continued low interest rates in the U.S. pushed the greenback sharply lower and therefore boosted most asset prices denominated in the dollar,” said MKS Group trader James Gardiner, cited by Reuters. Mr. Gardiner also said that the metal could see some resistance around the $1 180-85 level.

The U.S. dollar index for settlement in June was up 0.43% at 7:56 GMT to trade at 99.210, shifting in a daily range of 99.270 and 97.365. The U.S. currency gauge dropped 1.17% on Wednesday to 98.781, having previously fallen to 94.765, its lowest since February 26.

The precious metal hit its lowest in four months earlier this week as speculations of a sooner rate hike mounted. However, Feds statement provided some breathing room for gold and encouraged traders to cover their short positions. A lift to interest rates would curb demand for all non-interest-bearing assets, including gold.

Assets in the SPDR Gold Trust, the biggest bullion-backed ETF, gained 1.79 tons on Wednesday to 749.77 tons, marking the funds first inflow since February 20.

Pivot Points

According to Binary Tribune’s daily analysis, April gold’s central pivot point on the Comex stands at $1 157.1. If the contract breaks its first resistance level at $1 169.3, next barrier will be at $1 187.3. In case the second key resistance is broken, the precious metal may attempt to advance to $1 199.5.

If the contract manages to breach the S1 level at $1 139.1, it will next see support at $1 126.9. With this second key support broken, movement to the downside may extend to $1 108.9.