Spot gold continued to hover around $1930 in midsession trading Wednesday ahead of Thursday’s speech by Federal Reserve Chairman Colin Powell.
Gold futures closed lower for a second straight session on Tuesday as signs of easing tensions between the US and China curbed safe-haven demand for the metal.
Traders are still waiting for Fed Chairman Jerome Powell to unveil his latest policy at the annual central bankers’ meeting in Jackson Hole on Thursday.
Edward Moya, senior market analyst at Oanda, said in a market update that “with the progress against COVID-19 and the easing of tensions between The U.S. and China, there is no longer a need for safe haven assets,” and that gold has had several bad days. Still, “risks to the global economic outlook and uncertainty over U.S. elections should keep gold bulls at $1,900.”
Senior US and Chinese officials are reported to have reaffirmed their commitment to the initial stages of a US-China trade agreement, helping to calm some fears that tensions are rising.
Gold futures for December delivery fell $16.10, or 0.8 percent, to close at $1,923.10, after falling 0.4 percent in the previous session.
Gold has been under selling pressure, with spot gold closing lower in three of the past four sessions, including Tuesday, as optimism over coVID-19 vaccines and treatments powered equities.
Uncertainty about the economic impact of the epidemic and the outsized policy measures to combat it have been at the heart of the rally in gold and silver since March.
However, the rally in precious metals has cooled since minutes from the Federal Open Market Committee’s late July meeting showed the policy-setting committee was reluctant to use unconventional means to push down benchmark interest rates. The meeting was seen as negative for gold in the short term.
“Since the FOMC meeting minutes, market participants have been reluctant to risk events before, especially in September before the FOMC meeting and Jackson hole symposium, rebuilt in any enthusiasm gold long positions and short the dollar,” AxiCorp, chief global market strategist at Stephen Innes wrote in the daily report, he said, referring to Powell on Thursday through the network broadcast speech and the fed meeting next month.
Mr Powell is expected to outline a plan for inflation later this week, which would give them greater flexibility to allow inflation to exceed the 2 per cent annual target and help market participants anticipate policy moves.
“We expect the Chairman to effectively announce the results of the review of the monetary policy framework in advance, implying the formal adoption of average inflation targeting,” TD Securities strategists wrote in a recent research note.
That could give precious metals some boost, market experts say, because gold is often seen as a hedge against inflation.
“Gold and [foreign exchange] traders are currently adjusting their positions to the limited upside impact of the low average inflation target, as well articulated in the Fed’s public statements,” Innes wrote.
The rise in US Treasury yields also added to pressure on precious metals, with the yield on the 10-year Note rising 4 basis points to almost 0.69 per cent from 0.64 per cent on Monday. Higher yields would weaken investor demand for gold.