Commodity Market: Gold surges for a third day, markets await Fed’s policy decision for clues on recovery

Gold prices rose for a third consecutive day on Wednesday as US Treasury yields fell ahead of Fed’s highly anticipated policy decision later in the day.

The yellow metal surged 0.97% on Tuesday, while marking its best daily performance since May 7th. Gold has appreciated 2.08% so far this week, rebounding after last week’s steepest loss since early March.

Bond yields have risen recently on signs the US economy is gradually starting to recover from the coronavirus crisis. Some experts support the view that the Federal Reserve will probably not adopt yield curve control to push the yields on 10-year Treasuries lower.

“The Fed can afford to wait and see on yield curve control because the U.S. economy has gotten past the crisis phase and only just entered the healing phase,” Masafumi Yamamoto, chief currency strategist at Mizuho Securities, said.

As of 9:30 GMT on Wednesday Spot Gold was gaining 0.23% to trade at $1,718.67 per troy ounce, after earlier touching an intraday high of $1,720.79, or a price level not far from June 9th high. Meanwhile, Gold futures for delivery in August were gaining 0.19% on the day to trade at $1,725.15 per troy ounce, while Silver futures for delivery in July were up 0.04% to trade at $17.802 per troy ounce.

The US Dollar Index, which reflects the relative strength of the greenback against a basket of six other major currencies, was retreating 0.18% on Wednesday to 96.21, after earlier slipping as low as 96.11, or a level not seen since March 12th (96.08).

Market focus will now set on the outcome of the Federal Reserve’s two-day policy meeting, with the bank’s interest rate decision expected at 18:00 GMT. The Federal Open Market Committee (FOMC) will probably keep the target range for the federal funds rate intact between 0% and 0.25%, according to market expectations.

The policy decision will be followed by a press conference with Fed Chair Jerome Powell at 18:30 GMT. The Fed Chair had said the bank was strongly committed to use the full range of tools in support of the economy due to the unprecedented nature of the coronavirus crisis.

The Fed is also expected to publish its first economic projections since the COVID-19 pandemic triggered a recession in February.

“Gold traders would be looking to clues from the Fed as to the reality of a V-shaped economic recovery or whether stock market investors have gone ahead of themselves in assuming a V-shaped recovery,” Phillip Futures said in an investor note. “If the Fed paints a picture that is negative for Wall Street, demand would shift back into gold.”

There has been a slight change in near-term investor interest rate expectations. According to CME’s FedWatch Tool, as of June 10th, investors saw an 83.6% chance of the Federal Reserve keeping borrowing costs at the current 0%-0.25% level today, compared with an 84.3% probability on June 9th.

As far as the bank’s meeting next month is concerned, the chance of interest rates being left intact is seen at 84.3% on Wednesday, compared with an 84.6% probability a day ago.

Additional attention will be paid to the monthly US CPI inflation report by the Bureau of Labor Statistics at 12:30 GMT. The annualized consumer inflation in the country probably decelerated to 0.2% in May, according to a consensus of estimates, from 0.3% in April. The annualized core consumer inflation, which excludes prices of volatile categories such as food and energy, is expected to slow down to 1.3% in May from 1.4% in April.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – $1,709.35
R1 – $1,726.33
R2 – $1,737.87
R3 – $1,754.85
R4 – $1,771.83

S1 – $1,697.81
S2 – $1,680.83
S3 – $1,669.29
S4 – $1,657.75