Gold inched down, as metal traders exercised extreme caution ahead of the release of the Federal Reserve’s latest monetary policy statement on Wednesday afternoon.
On the Comex division of the New York Mercantile Exchange, gold for April delivery traded in a tight range between $1,227.30 and $1,235.90 an ounce, before settling at $1,230.00, down 1.00 or 0.08% on the session. Since surging to fresh 13-month highs at $1,280 an ounce last week, gold has slid more than $45 an ounce or 3% over the last several sessions. Despite the mild sell-off, gold is still up by approximately 15% since the start of the year. The precious metal remains on pace for one of its strongest opening quarters in 30 years.
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.
While the Federal Open Market Committee (FOMC) is unexpected to adjust short-term interest rates on Wednesday afternoon, Fed chair Janet Yellen could provide hints on the path of tightening the U.S. central bank will embark on for the remainder of 2016 at a closely-watched press conference. In January, the FOMC held its benchmark Federal Funds Rate at a target range between 0.25% and 0.50%, one month after abandoning a seven-year zero interest rate policy. It marked the first time the FOMC raised interest rates in nearly a decade.
Before Wednesday’s release, the U.S. Department of Labor said its Consumer Price Indexfell by 0.2% in February, in line with consensus estimates of a 0.3% decline. In January, consumer inflation remained flat, amid persistently low gas prices. On an annual basis, the CPI increased 1.0% from its level 12 months, slightly below January gains of 1.4%.
For the month, health care prices increased 0.5%, as costs for prescription drugs surged by nearly 1% in February. Shelter and food prices provided moderate upside pressure, while apparel prices surged by 1.6%. The Core CPI Index, which strips out volatile food and energy prices, rose 0.3% in February building on gains of 0.3% from the previous month. On a yearly basis, Core CPI jumped by 2.3%, inching up from 2.2% annual gains in January.
The relatively strong reading follows optimistic PCE inflation data from a month earlier, which could compel hawkish members of the FOMC to push for an accelerated path of tightening. The Core PCE Index, the Fed’s preferred gauge on inflation, soared by 1.7% in January on an annual basis, its strongest annual gain in more than a year. The FOMC is looking for signals that persistently sluggish inflation is approaching its 2% objective before it approves it raises rates again. Any rate hikes this year are viewed as bearish for gold, which struggles to compete with high-yield bearing assets in rising rate environments.
The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, rose by more than 0.35% to an intraday high of 97.09, before falling slightly back in afternoon trading. The index still remains near one-month lows.
Dollar-denominated commodities such as gold become more expensive for foreign purchasers when the dollar appreciates.
Silver for May delivery fell 0.011 or 0.07% to 15.305 an ounce.
Copper for May delivery gained 0.001 or 0.02% to $2.234 a pound.