🤯 Have you seen our AI stock pickers’ 2024 results? 84.62%! Grab November’s list now.Pick Stocks with AI

Gold returns near $1,200 as investors await further action from Fed, ECB

Published 02/16/2016, 12:26 PM
Updated 02/16/2016, 01:02 PM
Gold closed at $1,209 on Tuesday, continuing its retreat from 12-month highs reached last week
DX
-
HG
-

Investing.com -- Gold continued its retreat from 12-month highs on Tuesday, as investors awaited the release of the Federal Open Market Committee's minutes from its January meeting for further signals of possible divergence between the Federal Reserve and other major central banks throughout the world.

On the Comex division of the New York Mercantile Exchange, gold for April delivery traded in a broad range between $1,191.60 and $1,217.50, before closing at $1,209.20, moving back near a key technical level at $1,200 an ounce. Since surging by more than $60 an ounce to one-year highs last Thursday, gold has erased nearly all of the gains from the session by falling back approximately 3.6% over the last four sessions. The precious metal is still up nearly 14% since the start of the year, on pace for one of its strongest quarters in 30 years.

Gold likely gained support at $1,063.20, the low from January 4 and was met with resistance at $1,260.80, the high from Feb. 11.

Investors continued to digest dovish comments from European Central Bank president Mario Draghi on the strong possibility that its Governing Council will approve further easing measures when it holds its next monetary policy meeting in March. Speaking before the European Parliament's Economic and Monetary Affairs Committee in Brussels on Monday, Draghi indicated that the ECB will not show reluctance to act if persistent financial market turmoil or low energy prices continue to impact inflation expectations.

Last month, an ECB survey of 57 economists showed that annual inflation expectations for 2016 fell to 0.7%, down 0.3% from previous forecasts three months earlier. While forecasters anticipate that inflation in the euro zone will increase in each of the following two years, it is still expected to remain below the ECB's targeted goal of 2% through the end of 2018.

Crude prices have hovered around 12-year lows over the last two months, while euro zone banking stocks have tumbled in recent weeks amid concerns related to a rout in the high-yield sector and the ramifications of the adoption of negative interest rate policies at major central banks across the continent.

"We will examine the strength of the pass-through of low imported inflation to domestic wage and price formation and to inflation expectations. This will depend on the size and the persistence of the fall in oil and commodity prices and the incidence of second-round effects on domestic wages and prices," Draghi said.

"In light of the recent financial turmoil, we will analyze the state of transmission of our monetary impulses by the financial system and in particular by banks. If either of these two factors entail downward risks to price stability, we will not hesitate to act."

When the FOMC releases the minutes from its January meeting on Wednesday afternoon, investors could receive further indications on the pace of tightening the U.S. central bank will embark on over the next several months. While Janet Yellen testified last week that it is unlikely that economic conditions will force the FOMC to cut short-term interest rates, the Fed chair did not take negative interest rates off the table.

In late-January, the Bank of Japan spooked global markets by pushing its benchmark rate below zero for the first time in history. With the ECB's deposit rate already in subzero territory, it marks the first time on record that two of the three top central banks in the world have operated negative interest rate policies at the same time.

Any rate hikes by the Fed 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, gained more than 0.15% to an intraday high of 97.00. The index is still down approximately 2.8% since the BOJ's surprising decision.

Dollar-denominated commodities such as gold become more expensive for foreign purchasers when the dollar appreciates.

Silver for March delivery fell 0.46 or 2.915% to 15.340 an ounce.

Copper for March delivery inched up 0.022 or 1.08% to 2.051 a pound.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.