Gold holds steady in Asia as markets assess likely next Fed move

© Reuters. Gold steady in early Asia

Investing.com - Gold held mostly steady in Asia on Wednesday as investors await further data points on the U.S. economy as views on the Fed's next steps remain mixed.

On the Comex division of the New York Mercantile Exchange, gold for April delivery inched up 0.02% to $1,232.90 a troy ounce.

Silver futures for March delivery fell 0.10% to $14.840 a troy ounce, while copper futures for March delivery were flat at $2.143 a pound.

Overnight, gold futures pared considerable gains on Tuesday after stronger than expected factory data from the Institute of Supply Management provided some optimism that a prolonged slump in the manufacturing sector could be on the verge of a rebound.

Gold is coming off its strongest month in more than 13 years when it surged more than 10%, amid widespread concerns related to a slowdown in global economic growth, extreme volatility in financial markets and the proliferation of negative interest rates by a host of top central banks. As a result, gold is on track for one of its best opening quarters in 30 years.

Gold fell sharply in U.S. morning trading after the ISM reported that its Manufacturing Index rose 1.3 points to 49.5 in February, slightly above consensus forecasts of a 0.3 increase to 48.5.

Employment, which has hovered near seven-year lows in recent months, showed some signs of breaking through after jumping 2.6 points to 48.5. Production also soared 2.6 points last months to 52.8. While new orders stayed flat at 51.5, there were signs of demand growth within the report, as 12 of 18 industries reported an increase on the month. Any reading below 50 provides an indication of contraction within an industry.

The Federal Reserve is closely observing incoming economic data, ahead of its next interest rate decision on March 16. Last week, hawkish policymakers on the Federal Open Market Committee (FOMC) received positive news when reports indicated that core inflation in January rose by the highest annual level in three years. The Core PCE Index, the FOMC's preferred gauge, rose by 1.7%, hitting the high end of the FOMC's 2016 median forecast.

Fed vice chair William Dudley, though, offered a diverging view of the current pace of inflation at a speech in China on Tuesday. Core inflation has remained under the Fed's targeted objective of 2% for every month over the last three years.

"At this moment, I judge that the balance of risks to my growth and inflation outlooks may be starting to tilt slightly to the downside," Dudley said at a conference in Hangzhou, China. "On balance, I am somewhat less confident than I was before."

Any rate hikes by the FOMC this year are viewed as bearish for gold, which struggles to compete with high-yield bearing assets in rising rate environments.

Dudley, the president of the Federal Reserve Bank of New York, also expressed optimism that China is moving in the right direction in its transition to a consumer-driven economy. On Monday, the People's Bank of China injected additional easing measures into its banking sector when it lowered its Reserve Requirement Ratio for the fifth time in the last year.

Meanwhile, investors are gearing up for further stimulus from the European Central Bank when its Governing Council meets next week. It came after Eurostat, the EU's statistic bureau, said on Monday that prices throughout the euro zone fell by 0.2% on an annual basis in February, representing the first time euro zone inflation fell into negative territory since September.

The prospect for additional easing by two of the world's largest central banks pushed gold to session-highs on Tuesday.