Commodity Market: Gold maintains ground near one-week highs as Fed’s projections trigger a move into haven assets

Gold prices eased but still remained near highs unseen in over one week on Thursday, as market players booked profits after recent rally.

“We are seeing some profit-taking… But, gold has gotten through the $1,725 level, which suggests that we are in a pretty bullish format right now,” Stephen Innes, chief market strategist at AxiCorp, said.

Yesterday the precious metal registered its best daily performance since May 7th, surging 1.39%, as the Federal Reserve’s gloomy economic forecasts spooked investors, prompting them to shift from equities to safe haven assets.

The US central bank kept the target range for the federal funds rate intact between 0% and 0.25%, as widely expected, and reiterated its commitment to use the full range of tools in support of the economy. It also pledged to keep bond purchases at “the current pace” of nearly $80 billion per month in Treasuries and $40 billion per month in agency and mortgage backed securities, since it would be a long road to full-fledged recovery from the pandemic-induced recession.

“The underlying commitment with the Fed signalling their targets and rates are going to remain on hold through 2022 is quite positive for the gold market,” AxiCorp’s Innes said.

Fed policy makers now expect US economy to contract 6.5% this year, which compares with a 2% growth, as expected in December. Yet, they now project a 5% GDP growth in 2021, compared with a previously expected 1.9% growth.

PCE inflation is now expected to decelerate to 0.8% this year and then, accelerate to 1.6% in 2021. At the same time, the rate of unemployment in the country is now projected to surge to 9.3% this year, compared with a December forecast of 3.5%, before decreasing to 6.5% in 2021.

Risk-off mood was additionally fueled by concerns over a second wave of COVID-19 infections, as new confirmed cases with the illness in the United States slightly rose, following five weeks of declines.

As of 9:35 GMT on Thursday Spot Gold was retreating 0.38% to trade at $1,732.10 per troy ounce, after touching an intraday high of $1,740.07 in Asia, or a price level not seen since June 2nd ($1,745.30). Meanwhile, Gold futures for delivery in August were gaining 1.07% on the day to trade at $1,739.15 per troy ounce, while Silver futures for delivery in July were up 1.61% to trade at $18.082 per troy ounce.

The US Dollar Index, which reflects the relative strength of the greenback against a basket of six other major currencies, was edging up 0.19% on Thursday to 96.24, rebounding from Wednesday’s three-month low of 95.72.

Today Gold traders will be paying attention to the weekly report on US jobless claims at 12:30 GMT, following last week’s upbeat Non-Farm Payrolls data. The number of people in the country, who filed for unemployment assistance for the first time during the business week ended June 5th, probably eased to 1,550,000, according to market expectations, from 1,877,000 in the preceding week.

Meanwhile, near-term investor interest rate expectations were little changed. According to CME’s FedWatch Tool, as of June 11th, investors saw a 100.0% chance of the Federal Reserve keeping borrowing costs at the current 0%-0.25% level at its policy meeting on July 28th-29th, compared with an 86.0% probability on June 10th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – $1,728.98
R1 – $1,749.62
R2 – $1,760.57
R3 – $1,781.21
R4 – $1,801.85

S1 – $1,718.03
S2 – $1,697.39
S3 – $1,686.44
S4 – $1,675.49