BU: GOLD OFF 4-MTH LOW BUT FED STATEMENT MAY BE DOWNWARD CATALYST
The gold price was lower again ahead of the much-anticipated Federal Reserve statement on monetary policy, recovering only slightly from the previous session’s four-month lows.
Spot gold was last at $1,146.90/1,147.70 per ounce, down $2.20 on Tuesday’s close – it hit its lowest since November at $1,142.90 in that session.
A surge prior to the New York open on Tuesday softened the blow – prices bounced from the lows to around $1,160 in a few minutes, briefly pushing the SGE premium to $27 over spot in the overnight session, MKS said in a report this morning.
“We saw a big rally all the way up to $1,159.30, admittedly on the back of fairly light volume, given the size of the move,” Marex Spectron’s David Govett said. “There was no real reason behind the moves other than a market which is being pushed this way and that by a trading mentality that is akin to a herd of sheep.”
Heavy downside pressure on tanking oil prices and pre-FOMC positioning saw platinum suffering also – it moved below $1,100 for the first time in six years. Silver was the only metal not to take a proportionally similar hammering, though it remains susceptible to falling through $15.
So far today, platinum has retested $1,100 but it was last $1 lower at $1,088/1,093 per ounce, while silver was down four cents at $15.46/15.51 and palladium climbed $6 to $763/768.
But attention is now firmly on the Fed’s statement on monetary policy. With the US central bank supposedly close to raising interest rates, the language in the statement will be heavily scrutinised for clues as to when it will do so.
“Gold seems to be being guided by the sirens’ song emanating from the lows at $1,131.60 – whether gold bounces off the rocks or breaks up on them remains to be seen. Again today’s FOMC statement may well decide that,” FastMarkets analyst William Adams said.
According to speculation, the term ‘patient’ in regards to raising rates will not appear in the statement following a run of strong data and slack in the labour market continuing to lessen, which would ultimately give the bank the opportunity to be flexible over the coming months.
“If ['patience' is removed], this should spell further downward moves for precious metals, although the market is short down here and may not have the ammunition for a sustained move lower. If, however, patience remains, I would look for a short covering rally, which to my mind would be a good opportunity to sell,” Govett added.
Investors will also look for any changes to the language concerning data dependency, particularly while limited wage growth remains a concern.
In other data today, the Italian trade balance for January disappointed at 0.22 billion euros – a reading of 4.32 billion euros had been expected after the previous month’s 5.76 billion euros.
