On Wednesday, the dollar index rebounded to around 92.35, while spot gold continued to be under pressure, trading at around $1,738 an ounce after earlier approaching $1,735, down nearly $10 from the day’s high. Haresh Menghani, analyst at FXStreet, wrote a new article on Wednesday to analyze the trend of gold prices.
Gold saw some selling pressure in Asia on Wednesday, Menghani wrote. Gold has retreated from the $1,745 – $46 resistance zone and is currently trading just above $1,735.
The article notes that the dollar has received some support from the modest rise in US Treasury yields, and for now, the dollar’s corrective decline appears to have stopped at a two-week low. That has put some downward pressure on gold prices.
But Menghani said the generally softer tone in Asian equity markets could provide some support for gold’s safe-haven nature. Investors may also hold back on big bets, preferring to wait and see before the release of the latest FOMC minutes later on Wednesday. This should help limit further gold price declines, at least for now, so short trades should be cautious.
At 02:00 am Hong Kong time on Thursday, the Federal Open Market Committee (FOMC) will release the minutes of the March 16, March 17 monetary policy meeting, and the contents of the inflation and asset purchase program are likely to cause market volatility.
Local time on March 17, the Federal Reserve announced as scheduled to keep interest rates unchanged. The Fed sharply raised its forecasts for economic growth but said it did not expect to raise interest rates until 2023, despite an improving economic outlook and a pick-up in inflation this year.
“Given the impressive pace of COVID-19 vaccination, investors remain optimistic about the prospects for a relatively quick recovery of the U.S. economy from the pandemic,” Menghani wrote. That, along with President Joe Biden’s plan for more than $2 trillion in infrastructure spending, has fueled speculation of rising inflation in the U.S. and raised questions about whether the Fed will keep interest rates ultra-low for longer. As a result, the minutes will be scrutinized by investors for clues as to whether the Fed discussed the conditions under which it would begin to tighten monetary policy. This should continue to support the dollar and trigger some heavy selling around the non-yielding asset gold.”
At the same time, gold is likely to hold key support at $1,720 an ounce and remain subject to Treasury yields, dollar movements and broader market risk sentiment, Menghani said.
Menghani sees key intraday support at $1,731.71, $1,720.40 and $1,713.50. Key intraday resistance is seen at $1749.92, $1756.82, $1768.13.
The FOMC held short-term borrowing rates near zero at its March meeting, as expected, while continuing its programme of asset purchases, in which the Fed buys at least $120bn of bonds a month. The median federal funds rate will remain unchanged through 2023.
It is worth noting that the dot plot shows that several votes have adjusted their judgment on the timing of the monetary policy adjustment. Two members think that the Fed may have already completed a 1 percentage point rate hike by the end of 2023. The details of the discussion within the FOMC are worth paying attention to.
Capital Economics said the Fed minutes, to be released on Wednesday local time, should provide some indication of how committed the FOMC is to keeping rates at their current low levels. If the latest minutes bring forward market expectations of a Fed rate rise, the dollar could strengthen, putting downward pressure on commodity prices.
The minutes of the Fed’s March policy meeting, due on Wednesday, are expected to show divisions among Fed officials over the outlook for policy and the latest compromise reached through internal communications, analysts at Scotiabank said. The news is likely to keep market investors more focused on the impact of future U.S. economic data on Fed policy expectations, which could trigger a new round of tighter monetary policy outlook that remains an upward drag on Treasury yields and the dollar.
Jigar Trivedi, the commodity analyst at brokerage Anand Rathi Shares in Mumbai, said: “So far the Fed has been committed to keeping rates on hold until the end of 2023, but if inflation picks up, then they will reach their long-term target earlier than expected. If that happens, we will see interest rates go up and that will have a negative impact on gold prices.”