Gold Trades Higher Ahead of Fed Meeting

After recording a tepid bounce on Tuesday, spot gold edged lower to $1315 region during Asian trading session on Wednesday. The yellow metal, however, managed to recover the lost ground and rose back to $1320 level as investors await the US Federal Reserve to announce its monetary policy decision later during NY trading session. Although the central bank is not expected to raise interest rates this time, the accompanying statement will be closely scrutinized for clues of such an action in September or December.
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US economic data released on Tuesday showed consumer confidence held steady in July while new home sales data for June rose to the highest level since February 2008. Recent economic data continues to point towards a sustained momentum in the US economic recovery and provided the Fed with headroom to go ahead and raise interest-rates in 2016. Despite of the Brexit-led global economic uncertainty, the probability of an imminent Fed rate-hike has risen to around 40%, as reflected in CME group’s Fed Fund futures.

On Tuesday, the yellow metal got an initial boost as the US Dollar traded weak on the back of intense selling pressure against Yen as markets were disappointed on news of a lower-than-expected stimulus package from the Japanese government. A weaker greenback is seen supportive for dollar-denominated commodities such as gold.

However, Tuesday’s upbeat US economic data provided the much needed respite for the US Dollar and limited upside for the precious metal. Nevertheless, the precious metal still managed to settled narrowly higher after posting declines over last two trading session.

Going forward, stronger US GDP print for the second quarter of 2016, slated for release on Friday, will further boost the prospects of another Fed rate-hike later during this year and push the US Dollar higher, which would eventually drag gold prices even lower from current levels.

Meanwhile, market participants remain divided over the possibilities that the Bank of Japan will expand monetary stimulus, when it announces its monetary policy decision on Friday. Should the central bank refrain from announcing any fresh monetary stimulus measures, it would trigger a fresh bout of global volatility and eventually benefit the safe-haven appeal of the precious metal.

Technical outlook

On the immediate upside, bulls would be aiming for a strong bullish momentum above $1325 immediate resistance, which if cleared should boost the metal immediately towards 20-day SMA resistance near $1336 region. A sustained strength above 20-day SMA would pave way for further appreciating move towards a previous support break-point, now turned resistance, near $1350-53 area.

Meanwhile on the downside, weakness below recent lows support near $1312 level is likely to confirm extension of the near-term corrective move, even below post-Brexit corrective swing lows support near $1305 and $1300 round figure mark, towards testing 50-day SMA support near $1290 region.