Gold Takes Breather Before Conclusion Of Fed Policy Meeting

After slumping a little once overnight trading began, gold climbed because the greenback temporarily tumbled to below 73.5. The subsequent rally ended when the metal hit $1,510, and it spent the rest of the session drifting in the high 1500s except for a short-lived dip. A drop in WTI crude oil to below $112 and a temporary recovery in the greenback induced a selling wave that got gold down to its morning low of $1,503.10 a little before 4 AM ET. That stumble quickly reversed and gold settled back into its channel. Overall, the metal didn't move much; the jittery volatility of last session didn't carry over into the overnight stretch. For now, it's wait on the Fed and see. As of 8:11, the spot price had jumped up a bit to $1,509.40 for a gain of $2.30. The entire gain was attributed to predominant buying by the Kitco Gold Index.

The U.S. Dollar Index started the evening with a flash tumble that got it as low as 73.47 by 6:35 PM. After a relief recovery followed by further falls, the Index triple-bottomed in the next three hours. Having been saved from another tumble to a new low, it began to recover. Although jittery, its movement this morning was upwards albeit frustrated at 73.77 until just before regular trading started. As of 8:18, it had climbed above that resistance level to reach 73.80.

A Bloomberg article said that gold was steady while traders waited for the outcome of the Fed policy meeting. The greenback tumbled on speculation that QE3 is coming.

“A lot of gold buyers will be waiting for signals from the Fed,” said Bernard Dahdah, a London-based analyst at Natixis Commodity Markets Ltd. Any indications “on currency and interest rates could highly affect the price of gold. For the next weeks we view gold as being driven by the dollar.”

Walter de Wet is quoted as saying that gold's overboughtedness indicates a pullback in the near term, albeit temporary.

An earlier Reuters report said that gold inched upwards as traders remained cautious ahead of the Fed meeting's conclusion.

"The market is a bit mixed ahead of the Fed meeting, which will influence the move of the dollar and precious metals," said Peter Fung, head of dealing at Wing Fung Precious Metals based in Hong Kong.

Gold is likely to trade in the range of $1,500 and $1,510 before making a decisive move, Fung said.

Although dovishness might push gold higher, the market has handicapped the Fed staying the course.

A Wall Street Journal article said gold was steady but is vulnerable to a pullback even if the Fed does stay the course.

"It's fair to say that the Fed will likely continue with its current monetary policy, and while this will likely spark many to re-enter the market, I wouldn't be surprised if gold pulls back further before moving higher," said Standard Bank analyst Walter de Wet.

The durable-goods figure for March was released at 8:30: it showed a 2.5% rise, which was less than the expected 3.0%. That lesser gain was better than it seemed, as February's number was revised upwards from a small loss to 0.7% gain: had February's stayed where it was, March's would have beat. The gold market didn't react to the number. After stumbling about in the high 1500s, it was essentially unchanged when the pit session started up and the data released. As of 8:44, the spot price was $1,508.10 for a gain of $1.00 on the day. The Kitco Gold Index split the gain into +$0.85 for predominant buying and +$0.15 for a weakening greenback. The U.S. Dollar Index tailed back a bit after reaching 73.8: as of 8:46, it had paused at 73.77.

Some caution still remains as the Fed gets ready to announce its policy and Ben Bernanke prepares for his first press conference. The near-zero interest rate policy has indeed been kept for an extended period. It's got to end sometime, but the market doesn't anticipate an immediate shift. Gold should continue fumbling around until the announcement and press conference this afternoon, which may be anticlimactic.