Gold Drifts Lower Ahead of Fed Monetary Policy Decision

December Comex Gold prices traded lower and in a tight and narrow range as many of the major players remained on the sidelines ahead of Wednesday’s U.S. Federal Reserve monetary policy statement. The market finished inside yesterday’s range at $1326.60, down $1.70 or -0.13%. Spot gold was down 0.2 percent to $1317.26 an ounce.
[wibbitz]bf642a9774c6240ea92ddd50cb2e81e4c[/wibbitz]
Firmer equity prices also weighed on gold prices as global stock markets rose on reports that the Japanese government may announce a stimulus package with a headline figure of around 27 trillion yen. The report of BoJ stimulus program pushed traders to book profits in US stock market as well.

The Fed is widely expected to keep interest rates unchanged, deferring any possible increase until September or December, as Federal Open Market Committee members hold out for more evidence of a pickup in inflation. The central bank will issue its latest monetary policy statement at 1800 GMT on Wednesday.

A hawkish Fed statement will be supportive for the U.S. Dollar because higher interest rates will make the Greenback a more attractive investment. This could put pressure on the dollar-denominated gold market because it will make it more expensive to foreign investors.

A dovish Fed could trigger a short-covering rally in gold if the dollar weakens, however, higher equity markets may put a lid on the rally.

In other metals, September Palladium futures were down $4.30 at $688.50. On Tuesday, the market traded as high as $695.95, barely taking out the December 4 top at $694.85. Palladium has been the big winner in the metals markets since the U.K. voted to leave the European Union.

Traders cite constructive fundamentals as the main reason for the price rise. The key market driver has been the supply deficit in palladium. Imports by China for the metal primary used in catalytic convertors jumped 30 percent in the first half of the year as auto output increased.

Japanese stocks rallied on Wednesday with the Nikkei 225 surging 1.72 percent after Japanese media agency Jiji said that Prime Minister Shinzo Abe and his government will compile a stimulus package of more than $265 billion to prop up Japan’s weak economy.

The stimulus package, worth about 28 trillion yen, which exceeds initial estimates of around 20 trillion yen, includes 13 trillion yen in “fiscal measures”, said Reuters, citing Jiji.

In early U.S. trading, the September S&P 500 Index was up 0.18% and the Dow Futures contract was trading 46 points higher.