- Difference between bullish and bearish traders stabilised at 10 pp
- Bullion prices likely to be considerably influenced by Fed decisions; all eyes on Fed statement and "dot plot"
- Technical indicators' forecast is absolutely mixed for the next 24 hours
- Economic events to watch over the next 24 hours: US CPI (Feb), Housing Starts/Building Permits (Feb) and Industrial Production (Feb); FOMC Rate Decision, Economic Projections and Press Conference; UK Claimant Count Change (Feb), Average Weekly Earnings (3M-Jan) and Unemployment Rate (3M-Jan); New Zealand GDP (Q4); Japanese Trade Balance (Feb); Australian Employment Change and Unemployment Rate (Feb); Bank of Japan Governor Kuroda Speaks
Gold treaded water on Wednesday, after falling for the past three sessions to hit the lowest level in almost two weeks, as investors awaited the outcome of the Fed's policy meeting. Fed policy makers are expected to keep short-term interest rates unchanged but also to signal a rate soon as long as the labour market and inflation continues to improve. SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, reported its holdings climbed 0.26% to 792.23 tonnes on Tuesday from 790.14 tonnes on Monday.
Americans are showing renewed signs of caution due to ongoing financial-market turbulence, as retail sales declined last month and January's increase was revised to a drop. According to the Commerce Department, retail sales fell 0.1% in February to a seasonally adjusted $447.31 billion as automobile purchases decreased and cheaper gasoline lowered receipts at service stations. Moreover, January's figure was revised down to a 0.4% decline from the 0.2% gain previously reported. Core retail sales, which correspond most closely with the consumer spending component of GDP, were unchanged in February. The data could give the US central bank more reason to maintain interest rates on hold on Wednesday, when the Fed is due to release its latest policy statement. Following the data release, economists lowered their first-quarter GDP growth estimates by a percentage point to as low as a 1.9% rate. Retail sales are a key indicator of overall consumer spending, which makes up for about two-thirds of the US economic output. Still consumer spending remains buoyed by an improving labour market and rising house prices. A separate report showed the producer price index declined 0.2% in February on lower energy and food costs, after climbing 0.1% in January. Measured on an annual basis, the reading remained unchanged after sliding 0.2% in January.
The Bank of Japan kept monetary policy unchanged, after adopting a negative interest rate strategy in January in a bid to underpin inflation and create a virtuous spending cycle. The central bank offered a bleaker view on the world's third biggest economy and warned of waning inflation expectations, noting that global headwinds may justify introducing more stimulus ahead. In line with expectations, the BoJ kept its pledge to expand base money at an annual pace of 80 trillion yen. It also left unchanged a 0.1% negative interest rate it applies to some reserves parked by financial institutions at the central bank. The BoJ said exports and production has been weak due to the effects of the slowdown in emerging economies and said that China posed a risk to the outlook for Japan. The BoJ also revised down its estimate of inflation expectations to say they were "weakening recently," acknowledging that one of the key channels of its massive stimulus programme was not working as well as hoped for. Meanwhile, Japan's industrial output index posted a strong result on a monthly basis at the beginning of the year, revealing a robust recovery in Japan's factories over January compared with the last month in 2015. Industrial production jumped 3.7% month-on-month in January, the Ministry of Trade, Economy and Industry reported.
Upcoming fundamentals: No rate increase expected from the Fed
All eyes are on the most powerful central bank in the world today. This is going to be the second FOMC meeting in 2016 and the outcome will be known by 18:00 GMT on Wednesday. According to the Fed funds futures market, there is only a slim 4% probability of a rate increase this time, even though back in December is stood above 50%. Now the 50%+ chance of rate increase is forecasted only for the June FOMC meeting. Apart from the rate decision, which is unlikely to be a surprise today, investors will be focusing on the so-called "dot plot" of the Fed, where all FOMC members provide their Fed funds rate future projections up until the year 2018. In December the median estimate called for four rate hikes in 2016, but now the plot is highly likely to move down and expect only two/three rises this year. Nonetheless, during her press conference the Chair Janet Yellen may reiterate the FOMC's view that the next hike is coming as soon as April or June, in case economic conditions remain upbeat.
Gold flat as FOMC decision is looming
The bullion switched into the wait-and-see mode, before the Federal Reserve is getting ready to announce its monetary policy decision later on Wednesday. Gold is backed by the first weekly support at 1,230 for the moment. There is a risk of considerable Dollar's appreciation, in case the FOMC outcome is hawkish. Another support zone, which is capable of limiting a selloff in gold prices, is placed quite away from the spot at 1,210/05. While aggregate daily technical indicators are mixed, the bullish case is not off the table. Any rebound is going to pay attention to the weekly pivot point and Feb high at 1,257/63.Daily chart
For now we are closely monitoring the January-February mild uptrend line, currently located at about 1,227. Downside risks are substantial, especially in the run up to the Fed meeting. In order to cancel our negative forecast, gold prices are required to come back above the 200-hour SMA at 1,255.
Hourly chart