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James Hyerczyk
Comex Gold

Gold futures are trading lower but inside yesterday’s range as investors try to make sense out of the U.S. Federal Reserve’s interest rate and policy decisions from Wednesday. The gold market may be lower, but it is off yesterday’s low, suggesting buyers continue to defend a cluster of support at $1490.70 to $1488.90.

At 11:30 GMT, December Comex gold is trading $1507.10, down $8.60 or -0.57%.

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The Federal Reserve cut interest rates by 25 basis points as widely expected Wednesday, but in its policy statement, it continued to suggest that the move was meant as insurance against pockets of weakness in the economy. This disappointed gold bulls who believe the Fed is underestimating the weakness in the economy and should be signaling more aggressive future rate cuts.

A mixed Federal Open Market Committee (FOMC) is also raising concerns for gold traders who can’t determine whether there will be another rate cut in October or December, or perhaps in both months.

Three of the Fed’s voting members voted against the cut, with Boston Fed President Eric Rosengren and Kansas City Fed President Esther George both opposed for a second time. They don’t believe the economy needed looser policy, but they were joined by St. Louis Fed President James Bullard, who wanted the Fed to be more aggressive with a 50 basis point cut.

Gold traders were also disappointed by the Fed’s “dot plots”, which seemed to be skewed to the hawkish side.

According to the dot plot, five members had wanted to hold rates steady Wednesday, while five agreed with a quarter point cut and seven others wanted to see at least one more cut this year. The members voted seven to three to cut by a quarter point.

Daily Forecast

The other major financial markets – Treasurys, the Dollar and U.S. equities – are also indicating disappointment or perhaps confusion by the Fed. Yields are falling, the greenback is weakening and stocks are expected to open lower. Additionally, the Japanese Yen and Swiss Franc are higher, which suggests a slight increase in safe-haven demand.

These factors are likely to contribute to a firmer gold market on Thursday. Traders will be keeping an eye on the Middle East now that there is strong evidence that Iran was involved in the attacks on Saudi oilfields, but a military response by the U.S. is still remote.

In the meantime, gold is likely to be capped by the resumption of trade talks between the United States and China.

The Fed decision is already old news, which means gold traders are going to have to rely on Fed speakers to clarify the chances of future rate cuts. The Fed next meets on October 30. In the meantime, traders are still pricing in at least one more rate cut before the end of the year.

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