The Fed is likely to announce the end of its massive bond-buying stimulus when it wraps up the two-day meeting on Wednesday. Investors will be scrutinizing the Fed’s statement for signals about a rate increase and its view on the global economy.
Spot gold dropped to $1,222.20/oz, its lowest since October 15, before recovering to trade up 0.3% at $1,228.35/oz by 3.46am GMT. Gold could test resistance at $1,233/oz, according to Reuters technicals analyst Wang Tao.
“There were some stops triggered once we breached yesterday’s low but China walked in and pushed up gold,” said a trader in Hong Kong. “People are nervous ahead of the FOMC (Federal open market committee) and big position changes are unlikely. For the moment, I think we will hold between $1,220 and $1,240,” he said.
The Fed is likely to reinforce its stated willingness to wait a long while before hiking interest rates after a volatile month in financial markets that saw some measures of inflation expectations drop worryingly low. A delay in any hike in interest rates could boost gold, a noninterest-bearing asset.
With US inflation weak, the European economy stumbling and the dollar on the rise, the big question is to what extent Fed officials acknowledge risks to their expectation that the US recovery will continue to strengthen and allow them to raise rates around the middle of next year.
Asian shares were modestly higher on Tuesday, while the dollar held steady. Gold has gained nearly 4% since dropping to a 15-month low earlier in October on global slowdown fears. The precious metal is often seen as a hedge when riskier assets such as equities are out of favour.
In the physical markets, data on Monday showed China’s net gold imports from main conduit Hong Kong jumped to a six-month high in September as the world’s biggest consumer stocked up ahead of its National Day holiday. But imports had slowed since the holiday, traders said, possibly putting more pressure on gold.