Gold Traders Focus On Upbeat US Data Ahead Of The Fed

Gold continued to ease on Tuesday morning taking cues from the US session on Monday. Gold is trading at 1319.05 down almost $4 in Asia. Silver dipped only 20 points to 19.627 while platinum gave back almost $2 to trade at 1087.20. Traders moved to safety from the US dollar and US equities after several days of positive economic data and better than expected earning put the US economy in a better light. The US Federal Reserve will begin its two-day meeting with a statement due late on Wednesday. Gold traded lower overnight as traders have increased their odds of a rate rise before the end of the year to 47%, up from 41% a few days ago, and up from only 12% at the beginning of July.
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The yellow metal is particularly sensitive to an increase in interest rates because it raises the opportunity cost of holding assets like bullion which don’t pay any interest, while simultaneously boosting the U.S. dollar which the metal is priced in, making it more expensive to foreign currencies.

Demand for gold has softened in recent weeks according to Bloomberg, with purchases in gold-backed exchange traded funds (ETFs) slowing after hitting three year highs on 11 July.

The precious metal was put under pressure as traders prepared for the Federal Open Market Committee meeting on Tuesday. Traders believe that the Fed will delay the previously expected July interest rate increase until 2017.

Previous Fed minutes led traders to believe that the Fed may raise rates from 0.50 to 0.75 during the December FOMC meeting. According to the CME Group’s Fed-watch tool, the current implied probability of a hike from 0.50 to 0.75 is at 2 percent for the July meeting, 20 percent at the September 2016 meeting, 23 percent at the November 2016 meeting, and 45 percent at the December meeting.

Gold was prevented from falling further as the U.S. Dollar Index fell by 0.11 percent to 97.28. The index is a measure of the dollar against a basket of major currencies. Gold and the dollar typically move in opposite directions, which means if the dollar goes up, gold futures will fall as gold, measured by the dollar, becomes more expensive for investors. The dollar index, which tracks the greenback against a basket of six major rivals, edged down 0.1 percent, below the previous session’s high of 97.569, its loftiest peak since March.

Traders are expecting the new home sales report to be released on Tuesday, the durable goods orders report on Wednesday along with the Federal Open Market Committee announcement. Thursday will have the international trade in goods report, as well as the weekly jobless claims, and Friday will see the release of the gross domestic product report and Europe stress testing.

The U.S. financial system faces greater potential instability due to Britain’s decision to leave the European Union while low and negative interest rates also raise risks, a U.S. government monitor said on Monday. U.S. federal funds futures fell to four-week lows on Monday, signaling traders raised their bets the Federal Reserve would raise short-term interest rates by the end of 2016 if the economy shows further improvement.

Holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, fell 0.46 percent to 958.69 tonnes on Monday.