Commodity Market: Gold rises to a fresh two-week high due to softer US Dollar, market focus sets on the FOMC meeting

Spot Gold extended gains from the previous trading day and touched a fresh two-week high on Tuesday, mostly because the US Dollar softened ahead of the Federal Reserve’s two-day policy meeting, starting later today, which may offer further clues over the bank’s new policy framework.

A softer dollar makes safe haven Gold less expensive for international investors holding other currencies.

In August, Federal Reserve Chair Jerome Powell said the central bank would aim to achieve an average inflation of 2%, or it might allow the rate to run moderately above or below that objective for some time to support economic recovery and employment. This was considered as a hint that interest rates will probably remain at lower levels for longer despite a rise in inflation.

Fed’s Powell and US Treasury Secretary Steven Mnuchin are expected to testify on coronavirus relief before the Senate Banking Committee on September 24th.

Yesterday the yellow metal registered its biggest daily surge since August 28th after British Prime Minister Boris Johnson won initial approval for a plan to violate the Brexit divorce treaty. Gold is widely considered as a store of value during periods of political or economic uncertainty.

As of 9:00 GMT on Tuesday Spot Gold was edging up 0.38% to trade at $1,963.79 per troy ounce, after earlier touching an intraday high of $1,969.19, or a price level not seen since September 2nd ($1,973.33). The precious metal has dipped 0.19% so far in September, following a 0.42% loss in August.

Meanwhile, Gold futures for delivery in December were gaining 0.52% on the day to trade at $1,973.95 per troy ounce, while Silver futures for delivery in December were up 1.02% to trade at $27.635 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 0.10% on Tuesday to 92.96, after earlier slipping as low as 92.83, or its weakest level since September 10th (92.70).

In terms of macro data, Gold traders will be paying attention to the monthly report on US industrial production at 13:15 GMT. Output probably expanded at a monthly rate of 1.0% in August, according to market expectations, slowing down from a 3.0% growth in July. Manufacturing production is also expected to register a slower growth in August, 0.8%, after rising 3.4% in July.

Meanwhile, near-term investor interest rate expectations were without change. According to CME’s FedWatch Tool, as of September 15th, 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 September 14th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – $1,952.08
R1 – $1,966.90
R2 – $1,977.37
R3 – $1,992.19
R4 – $2,007.02

S1 – $1,941.61
S2 – $1,926.79
S3 – $1,916.32
S4 – $1,905.86