Commodity Market: Gold consolidates as Fed’s new stimulus measures heighten investor risk appetite

Gold recovered from losses in the prior trading day and consolidated within the $1,720-$1,730 area in European trade on Tuesday after the Federal Reserve unveiled plans to expand stimulus measures with corporate bond purchases in an attempt to mitigate the impact from the pandemic on economy.

The announcement heightened risk sentiment, bolstering global equities and pressuring the US Dollar. Japan’s Nikkei 225 closed 4.88% higher, Hang Seng rose 2.39%, while Australia’s S&P ASX went up 3.91% on Tuesday. In Europe, FTSE 100 was gaining 2.26%, France’s CAC 40 – 1.85%, while Germany’s DAX was up 2.22%, as of the moment of writing.

The US central bank said it would begin purchases of investment grade US corporate bonds in the secondary market from June 16th, while it also plans to buy bonds directly from issuers “in the near future.”

“The Fed pushing ahead with further stimulus measures, including these corporate bonds, indicates that this type of monetary easing is going to continue for some time,” ANZ analyst Daniel Hynes said.

“There are enough concerns around economic outlook to keep investor demand for gold pretty solid,” he added.

Meanwhile, Bank of Japan left its benchmark interest rate intact at -0.1% at its policy meeting on Tuesday and pledged to pour nearly JPY 110 trillion ($1 trillion) into the economy through its market operations and lending facilities. Japan’s central bank eased monetary policy in March and April in an attempt to alleviate corporate funding strains and to stabilize financial markets.

Central bank stimulus measures tend to support Gold, as the yellow metal is largely considered as a hedge against inflation.

As of 9:30 GMT on Tuesday Spot Gold was edging up 0.18% to trade at $1,728.26 per troy ounce, after earlier touching an intraday high of $1,733.03, or a price level not far from Monday’s high. Meanwhile, Gold futures for delivery in August were gaining 0.54% on the day to trade at $1,736.50 per troy ounce, while Silver futures for delivery in July were up 1.08% to trade at $17.587 per troy ounce.

The US Dollar Index, which reflects the relative strength of the greenback against a basket of six other major currencies, was edging down 0.08% on Tuesday to 96.54, after earlier slipping as low as 96.43, or a level not seen since June 11th (95.95).

Today Gold traders will be expecting the monthly reports on US retail sales and industrial production at 12:30 GMT and at 13:15 GMT respectively. Investors will be also paying attention to Federal Reserve Chair Jerome Powell’s testimony on the bank’s semi-annual monetary policy report in front of the Senate Banking Committee at 14:00 GMT.

Meanwhile, near-term investor interest rate expectations were without change. According to CME’s FedWatch Tool, as of June 16th, investors saw a 100.0% chance of the Federal Reserve keeping borrowing costs at the current 0%-0.25% level at its policy meeting on July 28th-29th, or unchanged compared to a day ago.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – $1,721.28
R1 – $1,738.08
R2 – $1,751.00
R3 – $1,767.80
R4 – $1,784.60

S1 – $1,708.36
S2 – $1,691.56
S3 – $1,678.63
S4 – $1,665.71

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