Gold struggles to make gains, market awaits FOMC rate hints

Otmane El Rhazi from The Bullion Desk.

Gold held below $1,200 on Wednesday morning, consolidating ahead of the FOMC press conference later today where traders expect significant downside pressure to arise should it provide any hints to the timing of interest-rate rises.

The spot gold price was last at $1,196.10/1,196.90 per ounce, down $1 and confined to a tight $6 intraday range.

The FOMC statement could shed light on the Fed’s interest rate policy timetable, a lack of clarity in which is generally hampering growth in commodities – particularly gold, which holds no yield.

“Most believe that the Fed will be cutting rates in 2015 and as that approaches gold will remain under pressure,” MKS said in a note.

“Some banks are predicting the phrase that the Fed will keep the funds rate low for a “considerable time” may be omitted from today’s statement,” it added. “If this is the case gold could easily test $1185-90 support and possibly break lower.”

But the downturn in oil prices, which are around five-and-a-half-year lows, and slowing world growth may see the Fed retain that part in the statement for a while longer amid the country’s continuing struggle to stoke inflation.

There is also speculation that Russia may be forced to buy or sell gold reserves in a bid to stop the plummeting rouble. On Monday night, the country’s central bank stepped in when the Russian currency hit 67 against the dollar, increasing interest rates to 17 percent from 10.5 percent in a knee-jerk move.

The rouble hit a high of 79 at one stage in the previous session.

“The unsettling trade in the USDRUB also caught the market’s attention with one trader quoting that trading spot RUB was like “shooting a moving target”. Despite the rate rise by the Russian CB the pair jumped higher during the early European session showing the lack of confidence the market has in the CB right now,” MKS added.

In data today, the eurozone final CPI at 0.3 percent was as expected, as was the core figure at 0.7 percent. Still to come in a busy day for US data are wholesale sales data, CPI figures, current account and the FOMC’s report on the state of the country’s economy.

In the other metals, silver remains below the key psychological level of $16 although it has been tested again this morning. The metal was last at $15.84/15.89 per ounce, up 14 cents.

Platinum at $1,200/1,205 per ounce was up $3 while palladium at $785/790 was $5 higher.

(Editing by Mark Shaw)

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