Gold treads water ahead of central bank meetings

The spot gold price treaded water during Asian trading hours on Wednesday ahead of the outcomes of the US Federal Open Market Committee (FOMC) and Bank of Japan (BoJ) meetings later on Wednesday.

Spot gold was last at $1,315.20-1,315.50 per ounce, up just $0.30 from Tuesday’s close. Trading ranged at $1,314.30-1,316.40 so far.

The Federal Open Market Committee’s (FOMC) two-day meeting which concludes today has kept investors sidelined as they await further clarity; US policymakers are deciding whether the economy can sustain higher interest rates after weeks of mixed data.

While majority of market participants still do not see a Fed rate hike happening in September, the probability assigned by the Fed funds market for a rate hike this year has increased.

On Tuesday, around 18 percent see a rate hike happening in September, up from 18 percent on Monday, while 60 percent now sees this taking place in December, up from 54 percent, according to the CME Group Fedwatch tool.

Expectations are that rates will be kept on hold, ANZ Research said on Wednesday morning.

“Whilst levels of resource utilisation in the labour market could justify a rate rise, headline inflation remains significantly below target and activity readings on the economy have been at best patchy recently,” it said.

Further upward pressure in gold could emerge after the release of the FOMC statement, Boris Mikanikrezai, a metals analyst at FastMarkets, said.

“We view the current weakness in gold as temporary, driven by a stronger dollar and higher US real rates as well as investor unwillingness to add to long positioning amid heightened uncertainty over the expected path of US monetary policy,” he said. 

“But we expect the Fed meeting to ease investor fears and prompt some market participants to accumulate gold at a faster pace than in the past two months. In this context, a fresh 2016 high in October remains our base case.”

A hawkish message from the Fed, however, constitutes a key downside risk for the precious metal, Mikanikrezai added.

In Japan, the BoJ is expected to announce later today another round of stimulus into a weak economy. The Japanese central banks introduced negative interest rates earlier this year but that has failed to ignite inflation or reverse nearly three decades of little to no growth.

In US data released Tuesday, building permits in August at 1.14 million were below the forecast of 1.17 million. Housing starts over the same period also came in at 1.14 million, again missing the predicted 1.19 million.

In currencies, the US dollar index fell 0.03 percent to 95.97 so far on Wednesday.

In other commodities, the Brent crude oil spot price rose 0.54 percent to $46.43 per barrel, while the Texas light sweet crude spot price slipped 0.09 percent to $44.81 recently on Wednesday.

In equities, the Shanghai Composite dipped 0.07 percent to 3,020.75 so far in the day.

It is a light day for data with mainly China’s CB leading index and US crude oil inventories of note later.

In other precious metals, silver was last at $19.19/19.21, down $0.015. Platinum rose $3 to $1,026/1,036, and palladium gained $1 to $678/686 recently on Wednesday.

On the Shanghai Futures Exchange, gold for December delivery was last unchanged at 284.55 yuan per gram, and the December silver was flat at 4,296 yuan per kilogram.

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