Commodity Market: Gold eases from one-week highs, investors look for clues over any change in Fed’s inflation approach

Having touched a fresh one-week high on Tuesday, Spot Gold eased back below the $2,000 mark on Wednesday as the US Dollar steadied near lows last seen in early May 2018 ahead of the release of the latest FOMC Minutes.

“Gold is down as the U.S. dollar strengthened slightly this morning. In the short term, a rebound in the USD might inhibit the rally in gold,” DailyFx strategist Margaret Yang, said.

“Gold has registered a 3% gain over the past two days, rendering the metal prices vulnerable to profit-taking activities.”

Gold traders will be expecting the release of the Fed Minutes at 18:00 GMT today, as they will be looking for any clues over an expected shift in the policy outlook.

The US Dollar has retreated and riskier assets have surged to record highs after the Fed intervened into global markets to maintain liquidity in support of pandemic-ravaged US economy. At the same time, the weaker dollar has made Gold cheaper for holders of other currencies, providing the safe haven metal with an additional boost.

“Although the Fed is not expected to indicate any new monetary stimulus initiatives in the minutes, investors would be paying attention to any change to Fed’s approach to inflation that could be negative for the dollar,” Phillip Futures analysts wrote in an investor note.

Speculation has emerged that the Fed may adopt an average inflation target in an attempt to drive inflation above 2% for some time to compensate for the period during which it has remained below that level.

As of 9:16 GMT on Wednesday Spot Gold was edging down 0.43% to trade at $1,993.42 per troy ounce, while moving within a daily range of $1,980.59-$2,006.74. Yesterday it climbed as high as $2,015.73, or its strongest level since August 11th. The precious metal advanced 10.95% in July, while marking its fourth consecutive month of gains and also the best monthly performance since January 2012. The commodity has gained another 1.06% so far this month.

Meanwhile, Gold futures for delivery in December were losing 0.56% on the day to trade at $2,001.80 per troy ounce, while Silver futures for delivery in September were down 1.67% to trade at $27.605 per troy ounce.

The US Dollar Index, which reflects the relative strength of the greenback against a basket of six other major currencies, was inching down 0.01% on Wednesday to 92.31, after earlier slipping as low as 92.15, while testing yesterday’s 27 1/2-month low.

Meanwhile, near-term investor interest rate expectations were without change. According to CME’s FedWatch Tool, as of August 19th, 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 September 15th-16th, or unchanged compared to August 18th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – $1,997.90
R1 – $2,019.76
R2 – $2,037.59
R3 – $2,059.45
R4 – $2,081.31

S1 – $1,980.07
S2 – $1,958.21
S3 – $1,940.38
S4 – $1,922.56