Gold Prices Fell on Wednesday as Investors Waited for the FOMC Meeting
After two months of sideways consolidation, spot gold prices finally broke through 1760, rekindling hopes, and Thursday's Fed interest rate decision became a litmus test as gold prices were blocked at the $1800 mark. Gold's recent rebound is due to the continued weakness of the dollar, expectations of rising global inflation and geopolitical risks. This time, the focus is on whether the Fed's tone will get tough.
Last week, the Bank of Canada announced that it would scale back its bond purchases and raise interest rates ahead of schedule, becoming the first G7 central bank to tighten monetary policy, prompting investors to focus on the attitudes of other central banks. because the current rise in risky assets such as stock markets and cryptocurrencies has a lot to do with the liquidity-rich environment, once other central banks follow the example of the Bank of Canada, it means a wave of interest rate hikes. The Fed's monetary policy attitude is particularly important because many central banks follow the Fed's lead. If the Fed continues to ease policy, risky assets will continue to dance, and if the Fed signals a tightening of monetary policy, a large amount of money will flow into the dollar, putting pressure on financial markets as a whole. Without guidance, the market is likely to remain volatile.
For gold, the biggest test is whether 1760 can hold up. If the gold price remains above 1760 after the Fed's interest rate decision, then many heads will largely make a comeback and have a chance to break through $1800. If the gold price falls below 1760 after the Fed interest rate resolution, it indicates that the rally is over. Gold may re-explore 1700-1680, and it cannot be ruled out that it will fall below 1680. Even if it is not so serious, it tends to return to low consolidation. I do not know when it will come out again.
Gold prices fell on Wednesday as investors waited for the FOMC meeting. While the Fed is widely expected to leave policy rates unchanged, expectations of an early exit from QE have been rising. Nearly half of economists surveyed by Bloomberg expect the central bank to start scaling back its asset purchases as early as the fourth quarter of this year, according to a recent survey by Bloomberg.
This comes against a backdrop of strong US economic data, with a series of impressive non-farm payrolls, retail sales, manufacturing PMI and new home sales data fuelling hopes of re-inflation. Corporate earnings are also strong, with more than 80% of S & P 500 companies reporting better-than-expected results so far. Hopes of re-inflation have boosted yields on Treasuries, with longer-term interest rates rising 4 to 9 basis points from a week ago. The real yield, represented by 10-year inflation-protected bonds, rose 1 basis point overnight to minus 0.78 per cent. The rise in real yields suppresses the attractiveness of interest-free precious metals because of the increased opportunity cost of holding them. The DXY dollar index rebounded to 91.00 for the third day in a row, putting downward pressure on gold prices.
Despite the recent strong economic data from the United States and China, the growth outlook for the rest of the world appears to be uneven. The adverse economic impact of the third wave of outbreaks in Japan, India and Brazil could prevent the Fed from considering tightening monetary policy soon.
The US first-quarter GDP and China's official manufacturing PMI data, as well as the press conference after the FOMC meeting, dominate this week's financial calendar. Stronger-than-expected readings could further boost yields and the dollar and put pressure on precious metals prices.
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