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James Hyerczyk

Gold futures are inching higher on Wednesday shortly after the regular session opening. Traders are showing little reaction to the two-sided volatility in the U.S. Dollar Index as most have opted to take to the sidelines ahead of the release of the U.S. Federal Reserve monetary policy statement later in the day at 18:00 GMT.

At 12:35 GMT, December Comex gold futures are trading $1972.70, up $8.80 or +0.45%. This is also up from yesterday’s low of $1927.50 that was reached after the market plunged $72.50 following a trade at $2000.00.

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Yesterday’s price action was essentially fueled by profit-taking ahead of today’s Fed announcements. The move has actually brought an air of caution to the market, given today’s limited reaction to the U.S. Dollar Index hitting another two-year low earlier today.

The Fed will release its interest rate decision and monetary policy statement at 1800 GMT. Policymakers are widely expected to keep rates unchanged. Federal Reserve Chairman Jerome Powell is also expected to hold a post-meeting press conference.

The Fed’s dovish statement should keep gold underpinned, while Powell could trigger another surge to the upside if he sternly warns about the economic consequences over the United States’ inability to contain the spread of the coronavirus.

Meanwhile, Republicans in the White House and the U.S. Congress struggled to reach a deal over a $1 trillion aid plan. This could become another bullish factor if there is a prolonged debate because the economy could weaken at a faster clip if the government allows the current stimulus program expire on July 31.

China Banks, Regulators Move to Cool Gold Rush

In news that could have a negative effect on global demand for gold, Chinese regulators and major banks are rushing to curb precious metal trading by domestic investors to temper speculation that some fear could cause a repeat of this year’s oil trading mishaps.

The scramble to limit risks comes as gold prices hit record highs this week, spurred by investors hunting for safe haven assets in markets rattled by worries of rising coronavirus cases, lofty equity valuations and a falling U.S. Dollar, Reuters reported.

Regulators are mindful of risks after investors were caught off guard in late April when the Bank of China settled a crude oil futures trading product known as Yuan You Bao at minus $37.63 per barrel, following a historic slide in oil prices into negative territory. The bank subsequently agreed to settle with more than half its customers facing losses, potentially taking a 6 billion to 7 billion yuan hit.


Daily Forecast

The limited reaction to the volatility in the U.S. Dollar earlier today suggests to me that gold traders are likely to keep their powder dry until the Fed announcements at 18:00 GMT.

Gold traders will be primarily interested in any moves by the Fed that suggests more liquidity will be hitting the economy. This news should trigger a bullish move. Furthermore, the tone of Powell’s press conference could also trigger a rally if he warns the economic recovery could slow if COVID-19 cases continue to surge.

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