MW: Gold struggles ahead of important Fed statement
Gold futures struggled to take flight on Wednesday amid the release of a batch of economic reports on housing and inflation that could offer the Federal Reserve reasons to resume a path of raising interest rates and in turn weigh on the yellow metal.
The Fed is slated to release its highly anticipated policy statement at 2 p.m. Eastern Time, 30 minutes after gold futures settle in CME trading.
The U.S. central bank isn’t likely to lift interest rates, but the tone and tenor of its statement as well as a follow-up news conference with Chairwoman Janet Yellen will be pored over to glean the Fed’s outlook for the U.S. economy and its inflation expectations.
April gold GCJ6, -0.04% was barely changed at $1,230.40 an ounce, after falling for a fifth session in a row Tuesday, reflecting investors’ cautious stance ahead of the Fed. Silver for May delivery SIK6, +0.06% was little changed at $15.26 an ounce.
A report from the Commerce Department showed that construction of single-family homes rose in February to its highest level in nine years and housing starts overall rose to a five-month high. Meanwhile, a measure of inflation, the consumer-price index, is showing signs of rising to levels considered healthy by the Fed, potentially giving the central bank a runway to return to hiking rates since pausing following its first interest-rate increase in nearly a decade in December.
A hawkish tone by the Fed would mean it is inclined to resume a plan to normalize monetary policy. That could weigh on dollar-denominated assets by delivering a fillip to the buck DXY, +0.38% A stronger buck can make assets priced in dollars less attractive to investors using other currencies, and a restart of rate increases would diminish the luster of commodities that don’t bear a yield.
Concerns about the U.S. economy, sluggish growth in China, the emergence of negative interest rates in Japan as well as additional stimulus measures enacted in Europe last week have supported safe-harbor bidding in gold, which has climbed about 16% year to date, according to FactSet data. On Tuesday, the Bank of Japan held its reserves deposit rate at minus 0.1% but reiterated its stance favoring lowering rates further if necessary.
Still, some market participants remain bullish on gold despite the potential headwinds.
“Despite a few days of declines, this yellow metal is bullish on the daily time frame and the heightened anxieties over the health of the global economy may offer a foundation for bullish investors to send prices higher once the correction has concluded,” said Lukman Otunuga, research analyst at FXTM, in a Wednesday note.
