Gold Reverses Gains ahead of Fed Minutes
Spot gold reversed course on Wednesday after gaining during early trading, but eventually settled above $1,200. The minutes of the Federal Reserve, on the other hand, are on focus as market participants expect for more hints regarding January policy meeting results and whether the United States central bank will hike interest rates this year.
On the COMEX division of the New York Mercantile Exchange, April delivery of Gold tumbled $2.90 or 0.24 percent, exchanging hands at $1,205.30, after surging 1 percent on early trade.
Market players will keep a close eye on minutes from the Federal Reserve’s January policy meeting, which will be released later on Wednesday. The Federal Reserve did not make any amends on interest rates following its January 27 meeting, and it was reportedly holding strict monitoring on global economic and financial developments.
Last week, Federal Reserve Chair Janet Yellen stated that financial conditions have reduced support to growth, while foreign developments indicated risks to the economic outlook.
Gold held its strongest performance on February 11, hitting a one year high with $1,263.48 per ounce.
An analyst noted, “As of last Friday, gold had seen one of its biggest two month rallies in the last five years, hitting a high of $1,263 per ounce. It clearly broke a multiyear downtrend, which also came on one of the heaviest volume days in recent memory.”
“We maintain our view of rising U.S. rates and hence lower gold prices with a 3-month target of $1,100 per troy ounce and 12-month target of $1000 per troy ounce.”
In the previous session, the precious metal slumped $31.20 or 2.52 percent, but the soar retreated this week after the stock market recovered, minimizing the demand for gold as market’s safe haven.
The yellow metal has been well boosted in recent weeks amid signs that economic and financial headwinds could be hard for the Federal Reserve to hike interest rates as much as it did like this year.
A gradual approach to higher interest rates is considered as less of a threat to gold’s prices than a rapid series of hikes.
Gold has jumped 13 percent so far this 2016 as market players look for safe havens in the middle of a piling instability in financial markets and mounting concerns over the health of global economy.
However, some analysts stated that gold increased too much, too quickly, and it could turn tables drastically.
As stated by a commodity analyst, “The market is in full ‘capital preservation’ mode and gold is regaining its appeal as investors shun all but the safest asset classes.”
The pickup in gold prices and demand, together with sentiment of gold may be recession-proof, will help the struggling producers of the yellow metal.
The Chinese government is currently the largest buyer of yellow metal, as the country’s reserves for gold gained at a monthly average of 17 tons through the second half of 2015, despite its devaluation of Yuan.
According to a market analyst, “Gold’s strength is probably going to be relatively short term, but there is an upside risk to gold, if the view that China is going to pull the whole world into recession becomes stronger.”
“However, we believe that these fears ignore the facts that systemic risks from oil, China and negative rates are very unlikely.”
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