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James Hyerczyk
Comex Gold

Gold futures are trading lower shortly before the mid-session on Wednesday, but clawing back most its earlier losses as traders await the release of the U.S. Federal Reserve monetary policy statement at 19:00 GMT. Traders are hoping the Fed reveals some clues as to what changes if any to its last policy statement in December it is likely to make going forward.

At 15:52 GMT, April Comex gold is trading $1849.40, down $5.40 or -0.29%. This is up from an intraday low of $1832.40, its lowest level since January 15.

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Fed Expectations

The U.S. Federal Reserve is expected to reinforce its commitment to accommodative monetary policy to aid the virus-hit economy in its decision.

Since easy monetary policy tends to weigh on government bond yields, a loose Fed policy could benefit non-yielding gold. U.S. stimulus plans doubts also weighed on U.S. Treasury yields.

To drive gold prices higher from current price levels, the Fed is going to have to be dovish enough to push 10-year Treasury yields below 1%.

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US Dollar on Track for Best Day in Nearly Two Weeks

The U.S. Dollar is up on Wednesday as investors turned more cautious on riskier assets amid growing worries about the economic impact of the COVID-19 pandemic and as a downward revision to Germany’s growth forecast weighed on the common currency.

A weaker Euro was the primary driver of the rally in the U.S. Dollar Index. The strong dollar helped dampen demand for dollar-denominated gold.

The Euro was pressured after the German government on Wednesday slashed its growth forecast for Europe’s largest economy to 3% this year, a sharp revision from last autumn’s estimate of 4.4%, caused by a second coronavirus lockdown.

The single-currency was also under pressure after a European Central Bank official said the bank was monitoring the currency closely. ECB governing council member Klaas Knot said the central bank has room to cut its deposit rate further, should it be necessary to improve financing conditions and reach its inflation target.

Knot’s comment constituted the most explicit hit to date from an ECB policymaker about the possibility of a rate cut to stem a rally in the Euro – a move that seemed highly unlikely until recently.

Daily Forecast

A dovish Fed may provide some support for gold, but don’t expect its actions to trigger the start of a lengthy rally. This is because of the overhang created by the possible delays in Biden’s coronavirus relief package.

The economic relief combined with an economic recovery could push yields higher along with inflation, limiting gold’s upside potential.

For a look at all of today’s economic events, check out our economic calendar.
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