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James Hyerczyk
Comex Gold

Gold futures are edging higher on Wednesday for a fourth consecutive session as traders await a major decision by the U.S. Federal Reserve that could determine the longer-term direction of prices. While the Fed is widely expected to trim its benchmark interest rate by 25-basis points, traders will be closely watching for guidance from Fed Chairman Jerome Powell that could indicate additional cuts are coming in September and December.

At 11:10 GMT, December Comex gold futures are trading $1443.90, up $2.10 or +0.15%.

Ahead of the release of the Fed announcements at 18:00 GMT, Fed fund futures are pricing in a 100 percent chance of a 25-basis point rate cut today and another 25-basis point reduction in September.

In economic news on Tuesday, the Core PCE Price Index, Personal Spending and Personal Income reports came in as expected. However, they only rose modestly, pointing to slower economic growth and muted inflation. Consumer Confidence came in well above the forecast and Pending Home Sales also beat the estimate.

Hopes of a trade deal between the United States and China were also dampened by negative comments from President Trump. This was supportive for gold as demand for higher risk assets dropped on the news.

Overnight, an Australian report showed consumer inflation increased more than expected. The Aussie Dollar rose on the news as the chances of an August rate cut by the Reserve Bank declined. In China, a report showed factory activity contracted for the third straight month in July, according to official data.

The official manufacturing Purchasing Managers’ Index (PMI) for July came in at 49.7, according to data from the Chinese statistics bureau. Traders had expected factory activity in China to edge up 49.6 from June’s reading of 49.4.

Daily Forecast

Before the Fed announcements, traders will get the opportunity to react to economic reports from the U.S. including ADP Non-Farm Employment Change. It is expected to show the private sector added 150K jobs in July. Chicago PMI is expected to come in at 51.7, up from 49.7.

As far as the Fed is concerned, the 25-basis point rate cut has been priced in for weeks. What traders want to know is whether the July cut is a one-time event, or the start of a rate cutting cycle.

Since traders are already pricing in a September rate cut then calling today’s a cut a one-time event will be bearish for gold. On the other hand, if the Fed surprises with a 50-basis point rate hike then look for gold prices to spike higher. The Fed would only do this if it wanted to send a message that it’s serious about preventing an economic slowdown and continuing the economic expansion.

Instead of trying to read and interpret the Fed, just watch the Treasury yields. If yields fall then the market thinks the Fed got it wrong. If yields rise then this will indicate the Fed got it right.

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