Gold prices hold steady ahead of Fed verdict

Reuters New Delhi, Delhi, India Jul 31, 2019, 01.23 PM(IST)

File photo. Photograph:( Reuters )

Story highlights

Fed funds rate futures are now fully pricing in a 25 basis point rate cut on Wednesday and another 25 basis point reduction by September.

Gold prices held steady on Wednesday as investors waited on the outcome of the Federal Reserve`s meeting later in the day when policymakers are expected to cut interest rates for the first time since the financial crisis.

Spot gold was flat at $1,430.69 per ounce as of 0723 GMT.

US gold futures edged 0.1 per cent higher to $1,443.60 an ounce. "Most of the people are staying on the sidelines due to the Fed meeting. If the Fed does reduce rates, gold may come down a little as a 25 basis point cut is already priced-in," said Brian Lan, managing director at dealer GoldSilver Central in Singapore.

"We are also looking at whether there will be further rate cuts. Over the longer term, we are still bullish on gold but in the short-term, we might see a bit of correction before it continues to move higher," Lan added.

Fed funds rate futures are now fully pricing in a 25 basis point rate cut on Wednesday and another 25 basis point reduction by September.

Markets will be watching out for guidance on whether the Federal Open Market Committee`s expected move is a one-time cut or the beginning of a rate-cutting cycle.

Cementing expectations of Fed rate cuts, US consumer spending and prices rose moderately in June, pointing to slower economic growth and benign inflation.

US President Donald Trump, meanwhile, reiterated his call for the Fed to make a large interest rate cut, saying he was disappointed in the US 

The central bank and that it had put him at a disadvantage by not acting sooner.

"Gold will look for direction in the tone of the Fed Chief`s rhetoric. More dovish could lead to a weaker dollar and a higher price for gold," Alfonso Esparza, a senior market analyst at OANDA, said in a note.

The dollar index was relatively unchanged against a basket of major currencies on Wednesday after hitting a two-month high in the previous session.

In financial markets, fresh trade concerns following threats by Trump to Beijing sent Asian shares to a six-week trough on Wednesday. 

Trump warned China against waiting out his presidency before finalising a trade deal, saying if he wins re-election in November 2020, the outcome could be no agreement or a harsher one.

On the technical front, Reuters technical analyst Wang Tao said a bullish target at $1,452 per ounce has been established for spot gold, as it has pierced above resistance at $1,427.

Among other precious metals, silver slipped 0.7 per cent to $16.46 per ounce.

Platinum jumped 1.2 per cent to $876.11 an ounce and palladium rose 1 per cent to $1,529.20.