Gold in the doldrums, market awaits FOMC meeting outcome

Otmane El Rhazi from The Bullion Desk.

Moves in gold were subdued on Wednesday morning while the market continues to focus on the Federal Reserve’s monthly monetary policy meeting.

The spot gold price of $1,179.20/1,180 per ounce was down $2 on Tuesday’s close, having traded in an intraday range of just $4 so far.

Silver was unchanged at $15.97/16.02 per ounce as was palladium at $728/734 while platinum continued to drop and struck another fresh six-year low this morning – it was last $3 lower at $1,073/1,078.

Participants are focussed on today’s FOMC meeting, federals funds rate and corresponding press conference for clues as to when the normalisation on US monetary policy may begin.

While the Fed is not expected to raise interest rates this time, it could change the language in statement, which that might add some volatility to quiet currency markets. The dollar was marginally lower at 1.1265 against the euro.

“We do not expect the Fed already to increase interest rates this evening, for the data available so far do not show clearly that the economic weakness of the first quarter has been overcome,” Commerzbank said in a note.

“However, if [Fed chair Janet] Yellen were to indicate that two rate hikes will be made during the course of the year, this could cause the US dollar to appreciate noticeably,” it added.

Market observers have largely anticipated a single increase in 2015, with the current consensus for a move in September particularly because second-quarter data so far suggests a rebound from contraction in the first quarter.

Two interest rises would put gold’s low of $1,163 from the start of the month to the test again, the bank added. Since the Fed’s decision is now entirely dependent on US data, a rate increase could happen at any future meeting.

Tomorrow’s eurogroup meetings may provide some direction particularly following the breakdown in talks between Greece and its creditors over the weekend.

Greece must repay 1.6 billion euros to the International Monetary Fund (IMF) by the end of this month; and Tsipras remains reluctant to implement the crucial reforms Athens needs to avoid a messy exit from the bloc.

Still, Marex Spectron’s David Govett continues to downplay the influence of Greece on the gold market.

“Greece remains an irrelevance. Today I fear will be no different, with the conclusion of the two-day FOMC meeting this evening. Ahead of this, we will remain thin, nervous and probably see a couple of silly moves as traders attempt to second guess any announcement tonight,” he said.

In data today, the eurozone final CPI was as expected at 0.3 percent as was the core number at 0.9 percent.

(Editing by Mark Shaw)

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