Gold Futures Surge on Stock Market Worries

April gold prices surged as investors flocked to the metal for protection against a drop in equity prices. Early in the session, the market caught a bid ahead of this afternoon’s Fed announcement. This move was expected to underpin the dollar which should have pressured gold. Instead, gold was given a boost as investors remained skeptical about the Fed decision.

The market accelerated to the upside shortly before the U.S. market opening as worries about emerging markets and poor corporate earnings drove down global equity markets. This encouraged investors to seek protection from the price slide in the gold market.

March crude oil futures finished the session lower, but inside yesterday’s range. This tends to indicate impending volatility. Traders are holding the market in a tight range ahead of this afternoon’s Fed announcement. Today’s Energy Information Administration report could support higher prices since it is expected to show a drawdown of 7.7 million barrels.

The GBP/USD closed lower on Wednesday. Position squaring ahead of the Fed announcement is helping to hold the market in a tight range. Earlier in the session, the Forex pair traded weaker after Bank of England Governor said the economy would continue to benefit from lower interest rates.

The EUR/USD finished lower. The market did however rebound after surviving a test of a retracement zone at 1.3623 to 1.3596. The sell-off this week reflects speculation that the Fed will once again trim at least $10 billion from its current monthly stimulus program. This tends to drive up short-term interest rates, making the dollar a more attractive investment.

At 2:00 p.m. ET, the Fed will make its last monetary announcement under the guidance of Chairman Ben Bernanke. The central bank is expected to leave short-term interest rates unchanged, but may over some insight into when it will begin the process. Furthermore, the Fed is expected to cut $10 of monthly monetary stimulus. In addition, it may surprise traders with a new economic outlook.

Theoretically, the Fed tapering should support higher interest rates, driving up the U.S. Dollar. However, today’s action suggests the importance of the Fed announcement has diminished since investors are now worried about weakness in the global economy and the dumping of emerging market assets.