Gold trading outlook: futures tick up after Fed meeting

Gold gained on Thursday after the US Federal Reserve announced it would not immediately raise interest rates despite signs of strengthening US economy.

Comex gold for delivery in February gained 0.51% to $1 200.6 per troy ounce by 08:38 GMT, having shifted in a daily range of $1 202.0-$1 188.5 an ounce. The precious metal edged up 0.02% on Wednesday to $1 194.5, but not before it dropped to $1 182.0, its lowest since December 1st.

Following the two-day meeting Fed Chair Janet Yellen announced that policy makers would keep borrowing costs near zero for “at least a couple of meetings”. Ms. Yellen also pointed out the criteria which have to be fulfilled in order to give the green light for an increase in interest rates, which once lifted will probably not return to normal levels until 2017, she added.

“Historically, we have seen as the economy strengthens and slack diminishes, that inflation does tend to gradually rise over time,” Ms. Yellen said. “I will be looking for evidence that I think strengthens my confidence in that view.”

However, plunging oil prices may push inflation further down, which is already below the 2% Fed target.

The US dollar index for settlement in March was down 0.10% at 89.235 at 08:38 GMT, prices held in a daily range of 89.120 and 89.595, its highest since December 8. The US currency gauge gained 1.17% on Wednesday to 89.326. A stronger greenback makes dollar-denominated commodities more expensive for holders of foreign currencies and curbs their appeal as an alternative investment, and vice versa.

An eventual interest increase next year would boost the dollar and thus hurt demand for the non-interest-bearing gold.

“The Fed statement does not imply an immediate rate hike. I think gold can stabilize between $1 180 and $1 200,” said Mark To, head of research at Hong Kongs Wing Fung Financial Group, cited by CNBC.

Mr. To added that policy makers are likely to initiate a rate hike in the middle of 2015 and thus pressure the precious metal to reach $1 130 again.

His statement was backed up from a Reuters survey after the Fed meeting conclusion, which showed that economists at Wall Streets largest banks expect borrowing cost to increase more than once in 2015, with the first one to come by June.

Gold prices could be affected by the weaker ruble, which lost 11% against the dollar on Tuesday, despite the 6.5% interest rate hike to 17%. During this week, the currency dropped almost 20% against its US counterpart, or a total of 50% since the beginning of the year. However, Ms. Yellen said that the Russian crisis would not affect much the US economy.

“US banks’ exposure to Russian residents is really quite small in terms of relative to their capital,” she said. “In terms of the portfolios of US residents, there are Russian securities, but they account for a very small share.”

The fall of the Russian currency has spurred speculations that the country might sell its gold reserves.

“If that happens, we would see gold taking another step down, possibly closer to our year-end forecast of $1 150,” Barnabas Gan, an analyst at OCBC Bank, said yesterday.

Assets in the SPDR Gold Trust, the biggest bullion-backed ETF, remained unchanged on Wednesday at 721.56 tons after two days of declines.

Pivot Points

According to Binary Tribune’s daily analysis, February gold’s central pivot point on the Comex stands at $1 193.2. If the contract breaks its first resistance level at $1 204.4, next barrier will be at $1 214.3. In case the second key resistance is broken, the precious metal may attempt to advance to $1 225.5.

If the contract manages to breach the S1 level at $1 183.3, it will next see support at $1 172.1. With this second key support broken, movement to the downside may extend to $1 162.2.