Gold Remains Strong Ahead of FOMC

By FX Empire Analyst - Barry Norman
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The Asian markets opened on a stronger note and are presently trading up ahead of the key FOMC two-day meeting. Riskier assets including base metals have already plunged in recent past and may relatively remain immune towards the pessimism showered by the weak economic releases such as the disappointing Dallas Manufacturing reported in the US, yesterday.

Reports from China showed that weak manufacturing and lower demand for finished goods have lowered industrial profits and the state may rebate its 17 percent VAT (value added tax) as a relief measure. This may further boost demand for industrial metals as the same serves the purpose of raw material to a basket of varied industries. The Chinese government continues to look for ways to boost its production and sagging growth.

From the Euro-zone, the German retail sales may increase while unemployment may continue to weigh on gains, however the shared currency may remain volatile as investors might eye the developments of the FOMC meeting that will start later today, the meeting is 2 days and no comments are expected until after the formal statement tomorrow.

From US, yet again spending may grow at a slower pace compared to income indicating the weakening consumption of the robust US economy and may slightly weigh on gains in the evening. Weak manufacturing may continue to have a lower figure expectation for Chicago PMI while consumer confidence may also plummet on the back of slowing growth and may continue to have a negative impact on base metals prices.

Overall, in today’s session, base metals are relatively strong on the back of hopes of easing coupled with strong equities.

After a fourth successive session of rally, gold prices are still showing strength ahead of  the two day Fed meeting. Markets are comparatively staying cool as investors are just waiting to see the action that were being promised by the chiefs to rein in the crisis in Europe and the same to bolster the fragile US economy. Investors have learned that they can never predict or out guess, Ben Bernanke.

The recent economic releases from the US were soft, ranging from GDP to Employment, which raised expectation for Fed easing and that may keep the gold price elevated for the day. On the same anticipation of central bankers’ endeavor about Euro-bloc’s integrity would have kept the shared currency buoyed, providing support to the yellow metal. Look ahead, although it is expected that the FOMC will bide time before giving new or additional monetary stimulus but the probable actions like extending asset purchase or extending the low rate period till 2015 would be  in offing.

Buying more mortgage backed securities is also lying under while emergency loan window are also expected to be kept open. All these are although proxies of the so called quantitative easing, impact could be same, i.e. depreciation in the dollar. Additional liquidity would therefore be pushing gold price higher. 

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