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Gold ticks up in quiet trade as investors await Fed rate decision

Published 04/20/2016, 12:39 PM
Updated 04/20/2016, 01:04 PM
Gold gained 0.20 or 0.02% on Wednesday to close at $1,254.50 an ounce

Gold gained 0.20 or 0.02% on Wednesday to close at $1,254.50 an ounce

Investing.com -- Gold inched up in quiet, restrained trading as investors continued to await next week's interest rate decision by the Federal Reserve for further indications on the path of tightening the U.S. central bank will embark on for the remainder of 2016.

On the Comex division of the New York Mercantile Exchange, gold for June delivery traded in a tight range between $1,247.20 and $1,259.80 an ounce before settling at $1,254.50, up 0.20 or 0.02% on the day. With the slight gains, gold closed higher for the fourth consecutive session and the eighth time in the last 10 sessions. It came one day after the precious metal enjoyed its strongest one-day move in a month, while erasing all of its losses from last week's massive two-day sell-off. Gold is up nearly 19% since the start of the year and is on pace for one of its strongest opening halves in more than a decade.

Gold likely gained support at $1,063.20, the low from January 4 and was met with resistance at $1,280.70, the high from Mar. 11.

On Wednesday, gold closed within a tight trading band of 1% or less from its previous session's settlement level for the third time in the last four trading days. Barring unforeseen circumstances, analysts expect gold to remain in a holding pattern for the next several days ahead of the Federal Open Market Committee's (FOMC) interest rate decision on April 27. In each of its first two meetings this year, the FOMC has held its benchmark Federal Funds Rate steady at a targeted range between 0.25 and 0.50%.

While the FOMC is unexpected to raise short-term interest rates at next week's meeting, the Fed could provide clues on the timing of its next rate hike. Since the FOMC voted 9-1 in March to leave interest rates unchanged, several hawkish members have appeared to have broken ranks with Fed chair Janet Yellen, who has remained adamant that the Fed should proceed cautiously with further tightening. Though the FOMC estimated in December that it could raise short-term rates as much as four times this year, the Fed lowered the projections last month amid weak global economic and financial conditions.

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

Gold leveled off after hitting session-highs in overnight, Asian trading. Investors in China continue to adjust to Tuesday's launch of the Shanghai Gold Fix, a twice-a-day price fixing mechanism at the world's largest physical gold exchange. The Shanghai Gold Exchange, which has listed more than 15 institutions as market makers for the fix, now sets two prices for gold in yuan-denominated terms each day.

"The Shanghai gold benchmark will provide a fair and tradable yuan-denominated gold fix price … will help improve yuan pricing mechanism and promote internationalization of the Chinese gold market,” said Pan Gongsheng, deputy governor of the People's Bank of China (PBOC).

China is the world's largest producer of gold and the world's second-largest consumer of the yellow metal.

The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, rose more than 0.20% to an intraday high of 94.32. The index remains near eight-month lows. Dollar-denominated commodities such as gold become more expensive for foreign purchasers when the dollar appreciates.

Silver for May delivery surged to a fresh 11-month high at $17.255 an ounce, before falling back slightly to 17.145 at the close of trading.

Copper for May delivery gained 0.014 or 0.61% to close at $2.237 a pound.

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