Gold Trades with Modest Losses, as Markets Eye Fed Meeting

27 Jan 2021 · 3rd Party Analysis

WRITTEN BY ThorFX

In Summary

  • Stimulus package negotiations may commence only in March
  • A risk-off mood still characterizes the gold market

Gold trades near flat on Wednesday as the European session presents mixed markets. In the early hours of trading, gold edges lower for a second consecutive session amid a moderate USD uptick. The precious metal reached an intraday low of $1,843 earlier today and is currently trading around $1,850 per ounce. The consolidation around the $1,850 level comes as the market remains cautious ahead of the FOMC decision later today.

Although gold was able to recover from last week’s low point of $1,808, the prevalent mood is still risk-off as the current market price of gold has been acting as a lid throughout the week so far. The price was able to climb to a weekly high of $1,868 for a short time before coming down towards current levels. Yesterday, gold suffered mild losses and ended the session in negative territory. The follow-through selling today comes a few hours before Fed Chair Jerome Powell presents his outlook for the economy and his comments on the current economic state. The Federal Reserve wraps up the first 2021 meeting today. Chairman Jerome Powell is likely to be cautious about tapering asset purchases. Mr. Powell will announce the Federal Reserve’s decision while the Fed is expected to leave its policies unchanged.

Gold has been stabilizing this week ahead of the Fed’s decision and Chairman Powell’s comments. Additionally, gold bugs are monitoring the situation in Washington as they look for hints of progress regarding the fiscal stimulus talks. President Joe Biden’s team has already met with a group of moderate Republicans and Democrats to advance the negotiations for the proposed $1.9tn relief package. Hopes for rapid approval of the stimulus plan are fading as it became clear the plan will probably only be discussed in March.

Vaccine Export Restrictions Ahead?

The lower risk appetite today is also spreading across European markets. A disappointing open was evident in Germany and the UK, while the French market is barely in positive territory. The flat to the downside opening of European markets is accompanied by a mixed picture of the US futures market. Dow Jones futures and S&P futures point to a negative open, while Nasdaq futures indicate a higher open.

Elsewhere, global virus cases surpassed 100 million on Tuesday, threatening the progress of vaccination programs around the world. The EU’s response to the virus has been slow and stumbling, posing risks for a double-dip recession in the eurozone. In the UK, the confirmed Covid deaths eclipsed 100,000. The grim milestone comes amid a rapid vaccination scheme across Britain, the leader in the West in terms of vaccination rate. The European Union remains at odds with AstraZeneca over delays in the delivery of vaccines. Germany has asked the European Union to restrict the export of vaccine doses as a way for the EU to keep up with the UK and the US in the pace of Covid-19 vaccinations. AstraZeneca has told Brussels that its vaccine production will sharply undershoot expectations. UK Prime Minister Boris Johnson urged the EU not to restrict vaccine exports. Indeed, Mr. Johnson is against any kind of export restrictions and according to him, the creation of vaccines has been “a wonderful example of multinational cooperation”.

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