By Chris Oliver, MarketWatch
HONG KONG (MarketWatch) — Gold prices were lower in the late afternoon in East Asia on Wednesday, with attention focused on the U.S. Federal Reserve and an expected policy-easing announcement in the form of a modest extension of its Operation Twist program.
Gold for August GCQ2 -0.23% delivery was down $6.50, or 0.4%, at $1,616.50 an ounce on the Comex division of the New York Mercantile Exchange, adding to Tuesday’s retreat of $3.80 in the regular U.S. session.
Silver for July SIN2 +0.04% delivery slipped 10 cents, or 0.4%, to $28.27 an ounce, extending a $0.30 slide in the previous session.
Expectations were mounting that the Federal Reserve would unveil more easing measures at the conclusion of its two-day policy meeting, which got underway Tuesday..
Credit Agricole CIB analysts said the Fed was likely to announce additional efforts to support the economy, amid weak employment growth and renewed signs of weakness in manufacturing activity.
“Our expectation of a modest extension of Operation Twist will disappoint those looking for strong action, resulting in a renewed increase in risk aversion and a firmer USD,” Credit Agricole analysts said in a note on Wednesday.
Operation Twist gets its name from the Fed trying to twist the yield curve by selling short-term securities that it holds while buying longer-term securities.
Goldman Sachs and Societe Generale were among research firms with outlier views for a more aggressive easing announcement from the Fed, with SocGen forecasting the U.S. central bank to unveil a plan to expand its balance sheet by $600 billion, marking the third round of quantitative easing.
Barclays analysts said Wednesday that such hopes for a new round of quantitative easing would likely be met with disappointment, viewing a more conservative approach in the form of an extension of Operation Twist as more likely.
“This should be U.S.-dollar positive and somewhat risk-negative,” Barclays’s analysts said in a note.
Chris Oliver is MarketWatch's Asia bureau chief, based in Hong Kong.
