The gold price edged higher on Tuesday (September 19) as investors awaited a two-day US Federal Reserve meeting that could provide hints on future monetary policy.
As of 1:30 p.m. EST, gold was trading at $1,307.18 per ounce, up 0.2 percent from a low of $1,304.10 touched the previous day. A weaker US dollar also supported prices.
“Investors have a tendency to stay on the sidelines ahead of the Fed and other important events, so that trading becomes more technical,” ABN Amro analyst Georgette Boele said.
Gold has been holding above the $1,300 mark since late August. But a more hawkish tone from the Fed could push the yellow metal below $1,300 temporarily, according to Boele.
“In general gold is struggling a bit to move higher, so overall I expect a test of $1,300. Some U.S. dollar recovery would be in line with that,” she commented.
Meanwhile, Lukman Otunuga, research analyst at FXTM, told MarketWatch that a fall in gold prices “below the tough $1,300 support should encourage a further decline toward $1,280.” But alternatively, if the $1,300 level holds, “then the price could bounce back toward $1,315.”
The two-day Fed meeting will end on Wednesday with a statement on monetary policy. Many market watchers expect the Fed to keep interest rates unchanged at this meeting; they see the central bank continuing with a gradual approach to increases later in the year.
“The odds of a December rate hike are standing at 40 percent, but a hawkish tone by the Fed could strengthen the dollar index,” said Naeem Aslam, chief market analyst at ThinkMarkets.
Similarly, Goldman Sachs (NYSE:GS) analysts said in a recent report that the odds of a third rate hike this year have increased to 60 percent from 55 percent, after a significant firming in core inflation.
Aside from interest rates, the Fed will address the reduction of its $4.5-trillion balance sheet, which economists expect to begin as soon as October.
“Normally you would expect gold to suffer from a reduction of the balance sheet, as it benefited when it was increased,” Capital Economics analyst Simona Gambarini said. “But as the Fed has been quite open about its intentions to make this happen, I don’t think, unless it announces that it intends to reduce by a lot more than markets expect, that that will happen.”
On Tuesday, a weaker US dollar also pushed gold demand higher, as a softer greenback makes commodities priced in dollars cheaper for investors using other currencies.
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.