By Barani Krishnan
Investing.com - Gold got back on the green lane on Monday as a slide in the dollar gave an earlier-than-expected boost to the yellow metal ahead of the two-day meeting of the Federal Reserve.
U.S. gold for December delivery settled up $15.80, or 0.8%, at $1,963.70 per ounce on New York’s COMEX, extending last week’s rise of 0.5%.
The spot price of gold, which reflects real-time trades in bullion, climbed $14.72, or 0.8%, to $1,955.08 by 1:45 PM ET (17:45 GMT). It gained 0.4% last week.
The two-day monetary policy meeting of the Fed’s Federal Open Market Committee for September begins Tuesday, with Chairman Jay Powell wrapping the event with a news conference on Wednesday.
While U.S. interest rates themselves are unlikely to generate any news at the meeting — with the central bank looking most comfortable with its zero to 0.25% holding rate — Powell will likely revisit at his news conference the Fed’s mission of higher-for-longer inflation.
If Powell does that, then the Dollar Index, which serves as an alternate trade to gold, should move even lower, giving the yellow metal a bid. The index, which pits the greenback against six major currencies, particularly the euro, was down 0.3% tio 93.07, having broken the key 93-handle earlier to trade as low as 92.86 earlier.
The dollar slid as COVID-19 vaccine optimism lifted equity markets. Wall Street’s S&P 500 rose 1.3%. Stocks took off as AstraZeneca (NYSE:AZN) and Oxford University announced over the weekend that they were set to resume coronavirus vaccine clinical trials in the UK after a week’s pause due to safety concerns.
“Gold has steadied in the middle of its $1,900-2,000 range, buoyed a little by the fact that the dollar has struggled to build and find momentum after breaking higher last week,” said Craig Erlam at online trading platform OANDA.
But the dollar’s setback could be temporary, with a corrective move higher still plausible despite the Fed theme, he said.
“Longer term, the bullish case for gold remains in-tact for all the normal reasons (dollar downtrend, unprecedented stimulus, suppressed yields etc),” Erlam added. “Perhaps the near term is being impacted by the Fed meeting this week, traders sitting on the fence in the run up to it.”
“In theory, the Fed enabled itself to at least signal more easing ... having amended its framework to allow for an inflation overshoot. Should it pass up the opportunity, traders may reassess just how significant a difference such a policy change will make.”
Despite Monday’s rally, gold remains way below Comex’s record highs of nearly $2,090 and bullion’s peak of above 2,073, both hit on Aug 7.
Charts show that spot gold needs to get to at least $1,968 to recover some of the frenetic momentum that took it to last month’s record highs. Monday’s peak for bullion was below $1,963.
“Gold actually needs to close above $1,973 and cross above $1,993 to resume the bullish momentum,” said precious metals chartist Sunil Kumar Dixit. “On the downside, breaking below $1,935 and a close below $1,920 will prompt it to attempt the $1,900 handle. Further weakness can increase the chances of a lower low that may reach $1,850-$1,800.”