Commodities trading outlook: gold holds steady ahead of FOMC meeting, copper slides

Gold was little changed on Tuesday after two days of declines amid speculations that the Federal Reserve will not initiate an interest rate hike at its upcoming policy meeting, despite a stronger US economy. Silver, platinum and palladium were little changed. Copper slid after government data showed a slowdown in Chinese industrial profits growth to the lowest on record.

Comex gold for delivery in February rose 0.20% to $1 281.9 per troy ounce by 10:09 GMT, shifting in a daily range of $1 283.9 – $1 272.0, its lowest since January 19. The precious metal lost 1.02% on Monday.

The Federal Open Market Committee kicks-off its two-day policy meeting later today, when official are to discuss whether to increase US interest rates amid improving economy. However, pressured by plunging oil prices, the country’s inflation is still below Fed’s desired level of 2%. Investors would watch closely for the outcome of the discussion as an eventual rate hike would hurt demand for the non-interest-bearing gold.

The US dollar index for settlement in March was down 0.26% at 94.870 at 10:08 GMT, holding in a daily range of 95.325-94.710. The US currency gauge climbed 0.07% on Monday to 95.115, but not before it touched 95.850, its highest in at least a decade. 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.

The “gold market’s focus may shift to the upcoming FOMC meeting,” James Steel, an analyst at HSBC Securities, wrote in a note, cited by Bloomberg. “The market’s focus has been more so on global monetary policy expectations and less so on Greek developments. In the near term, bullion may continue to consolidate from gains made earlier in the year.”

The precious metal 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 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.

After the elections on Sunday, which the anti-austerity party Syriza decisively won, finance ministers across Europe began to review options for breathing life into Greece’s struggling rescue program. However, European officials warned that they will not cope with party leader Alexis Tsipras’ demands to reduce Greece’s debt.

Meanwhile, according to data released by the IMF, Russia increased its gold holdings for a ninth consecutive month, followed by Kazakhstan and the Netherlands, which raised its stockpiles of the yellow metal for the first time since 1998. Turkey and Mexico reduced their gold reserves.

Assets in the SPDR Gold Trust, the biggest bullion-backed ETF, climbed 1.79 tons on Monday to 743.44 tons. Changes in holdings typically move gold prices in the same direction.

Copper

The industrial metal fell on Tuesday amid concerns of lower Chinese demand as latest data showed a further slowdown in industrial profit growth in the worlds top metals consumer.

Comex copper for delivery in March traded 1.10% lower at $2.5150 per pound at 10:10 GMT, having shifted in a daily range of $2.5435-$2.5010. The industrial metal rose 1.66% on Monday to $2.5430. Prices have fallen by 15.6% over the past six weeks.

Data by the National Bureau of Statistics showed that industrial profits in China grew last year by 3.3%, the slowest growth in records dating back to 2000. The gauge slid for a third month in December, dropping by 8%.

The latest downbeat data come after the statistics agency reported last week that the Chinese economy expanded by an annualized 7.3% in the fourth quarter, exceeding broad expectations for 7.2% but also pushing full-year growth down to 7.4% in 2014, the lowest since 1990 and below the government’s targeted 7.5%.

Meanwhile, preliminary private data showed last week that the contraction in China’s manufacturing sector continued for a second month, although the figures topped analysts’ forecasts. The HSBC Flash China Manufacturing PMI rose to 49.8 from December’s final reading of 49.6, while the Flash China Manufacturing Output Index hit a three-month high of 50.1 from 49.9 in December.

David Lennox, a resource analyst at Fat Prophets in Sydney, said for Bloomberg: “China’s industrial profits are just another bit of bad news on top of other bad news. Because the outlook is so gloomy for some time, it’s just reinforcing the downward movement.”

The market had calmed earlier after European leaders showed willingness to discuss a deal with Greeces new government, but dismissed its demands for debt forgiveness.

Market players now eyed key economic data from the US due later today, as well as the outcome of FOMC’s two-day policy meeting that concludes on Wednesday to gauge the US economy’s recovery pace and the dollar’s valuation outlook.

Durable goods orders likely rose in December after contracting a month earlier, while sales of newly built homes probably reached an annualized 450 000 units. Consumer confidence picked up in January, the Conference Board is expected to report, with the corresponding index anticipated to come in at 95.1 from 92.6 in December.