The US dollar was trading in the range near 91.87 ahead of the Fed meeting; also keeping a lid on precious metals' price moves. Gold was trading near $1,735, slightly higher from the previous trading session.
The Federal Open Market Committee is scheduled to take a decision on interest rates today, followed by a press conference with Fed Chairman Jerome Powell which may give further direction to the market.
The Fed is likely to keep the interest rate near zero. Further, it may continue buying at least $120 billion worth of bonds every month to keep markets liquid.
However, it would be important to watch Fed comments on the US economic condition, post robust vaccination drive and the new pandemic relief package.
The Fed’s previous Economic Projections indicated December GDP growth at 4.2%, unemployment rate at 5%, and inflation at 1.8%. Albeit, Goldman Sachs recently raised its GDP forecast to 7% for the full year and a drastic drop in the unemployment rate.
The Fed’s comments on inflation, along with rising global bond yields, would also be an important point to watch out for. The Federal Reserve may adjust some of its bond-buying programs to keep long-term yields under control.
However, bond yields are likely to keep a cap on gold prices. On Tuesday, The US 10-year T-note yield rose +1.6 bp to 1.621%, modestly below last Friday's 13-month high of 1.641%. A similar trend continued in the early hours of Wednesday.
Inflation data is the key indicator to watch out for as it impacts on gold prices as an investment. Gold is used as a hedge against inflation.
The US February import price index ex-petroleum rose +0.5% m/m against expectations of +0.4% m/m. Strong inflation expectation is likely to support gold prices.
Gold prices are likely to trade firm while above the key support level of $1,715 and $1,682. It may find stiff resistance around $1,747 and $1,775.