Gold futures are trading lower shortly before the regular session opening and well ahead of the release of the major U.S. Federal Reserve interest rate and monetary policy decisions as well as the Federal Open Market Committee economic projections at 1800 GMT. Pressuring gold prices today is a stronger U.S. Dollar. The greenback is being supported by firmer Treasury yields as some safe-haven buying related to renewed concerns over U.S.-China trade relations.
At 10:06 GMT, April Comex gold is trading $1302.80, down $3.70 or -0.28%.
In a nutshell, the Fed is widely expected to leave its benchmark interest rate unchanged, trim the number of rate hikes projected for the rest of the year, and release long-awaited details of a plan to end the monthly reduction of its massive balance sheet.
According to the CME Group’s FedWatch tool, investors now put a 75 percent probability on the likelihood the Fed won’t raise its overnight benchmark interest rate, or federal funds rate, any more this year. The fed funds rate is currently set in a range of 2.25 percent to 2.50 percent.
Today’s economic projections will show how closely Fed policymakers align with the view of investors. In December, the Fed projected two rate hikes this year, but that outlook is widely expected to be cut to a single increase today. There is also the possibility that policymakers drop the number of expected cuts to zero.
The focus for gold traders is likely to be on the balance sheet, and the Fed’s plan to stop reducing its holdings of Treasury bonds and mortgage-backed securities each month by as much as $50 billion.
Renewed Trade Fears
Besides the Fed, gold traders are also reacting to renewed fears over U.S.-China trade negotiations because they are leading to increased demand for the safe-haven U.S. Dollar. According to media reports, the U.S. is becoming concerned that China is pushing back against American demands in trade talks.
Volatility should be the theme today in the gold market because the Fed announcements contain multiple components. Firstly, there’s the economic projections which are expected to show the Fed will cut the number of potential rate hikes. This is potentially bullish for gold prices.
Secondly, there’s the plan to reduce its balance sheet. This can be both bullish and bearish for gold prices. It all depends on how fast the Fed decides to move. If the market believes the Fed is moving too fast then this could we bearish for gold. If traders believe the Fed is moving just right, then combined with the reduction in the number of rate hikes, we could see a bullish reaction in gold.
Keep in mind that the wildcard remains U.S.-China trade relations. If they continue to raise concerns then flight-to-safety buying of the U.S. Dollar could put a lid on any gains produced by the Fed decisions.
This article was originally posted on FX Empire
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