Gold futures are edging lower on Wednesday well ahead of the U.S. Federal Reserve’s interest rate decision and release of its monetary policy statement at 18:00 GMT.
Prices are being pressured by firm U.S. Treasury yields and increased demand for risky assets on the hope that a planned meeting between U.S. President Trump and China President Xi Jinping at the G-20 meeting in Osaka, Japan later in the month will lead to the resumption of trade negotiations.
At 08:14 GMT, August Comex gold futures are trading $1346.60, down $4.10 or -0.30%.
Dovish comments from European Central Bank President Mario Draghi on Tuesday also put a lid on gold prices. Draghi said the ECB could still lower interest rates. This drove the Euro sharply lower, pushing up the U.S. Dollar, leading to a drop in demand for dollar-denominated gold.
On Tuesday, Trump tweeted that he “had a very good telephone conversation” with Chinese President Xi Jinping. He added: “We will be having an extended meeting next week at the G-20 in Japan. Our respective teams will begin talks prior to our meeting.” The summit will start on June 28.
Trump’s tweet was enough to trigger a surge in U.S. equity markets and a rise in Treasury yields that helped make the U.S. Dollar a more attractive asset, while dampening demand for gold.
Draghi drove the Euro lower and the U.S. Dollar higher after he said the bank will need to ease policy again if inflation doesn’t head back to its target. Once again, the strong dollar weighed on demand for dollar-denominated gold.
The catalyst behind the price action today is likely to be the Fed’s interest rate decision, monetary policy statement and dot-plot projections. The Fed is expected to leave its benchmark interest rate unchanged at this meeting, but traders want to know what it is going to do in July, September and December.
If the Fed greenlights three rate cuts this year then look for the dollar to weaken. This should drive up gold prices, but gains could be limited if equity prices soar at the same time.
If the Fed comes across as hawkish, meaning it doesn’t indicate a rate cut in July or September then look for a steep drop in gold prices.
At this time, it’s all about the number of rate cuts by the Fed.
This article was originally posted on FX Empire
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