Gold is edging higher in a lackluster trade on Wednesday. The price action is being compressed by uncertainty ahead of the U.S. Federal Reserve's monetary policy statement and interest rate decisions and the looming tariff deadline on December 15.
Treasury yields are inching lower, which is providing some support for gold. But a slight rise in demand for equities is helping to keep a lid on prices. The U.S. Dollar is trading flat to lower, which is also capping gold prices.
At 12:27 GMT, February Comex gold is trading $1470.40, up $2.30 or +0.16%.
Hawkish Fed Could Crush Gold Prices
Gold prices will be affected by the tone of the Fed's monetary policy statement. A dovish Fed will be supportive. A hawkish Fed will be restrictive.
According to CNBC, "The Fed is expected to conclude its December meeting at 19:00 GMT on Wednesday by signaling it remains on hold for the time being and is monitoring economic developments."
"Federal Reserve Chairman Jerome Powell is also expected to vow to do whatever it takes to keep the short-term lending market stable as year-end approaches and banks move to spruce up their balance sheets and make them look safer for regulatory purposes."
"The Fed could give a nod to an improved economy and lower unemployment, following Friday's blowout November jobs report. "
"The FOMC is confident that current policy settings are at an appropriate level to lift US inflation back towards target," Joseph Capurso, senior currency strategist at Commonwealth Bank of Australia, wrote in a note. "We doubt there has been any material reassessment of this view since the October meeting.
Lack of Concrete US-China Trade Progress Supportive for Gold
Gold investors aren't sure how to play the December 15 deadline for new U.S. tariffs on Chinese imports, which may be why prices are being support this week.
The latest news has The Wall Street Journal reporting Tuesday that the U.S. plans to delay slapping China with additional tariffs as both sides try to work out the agreement.
Although the current price action suggests the markets now assume or anticipate that some form of phase one deal will be signed, the negotiations appear to be going down to the wire.
The latest reports have U.S. negotiators asking Chinese officials to commit to some agricultural purchases upfront before moving forward with a deal, according to The Wall Street Journal. Meanwhile, China wants its agricultural purchases to be proportional with the amount of tariffs the U.S. rolls back.
Compliance with any agreement is still a key issue. The U.S. is also reportedly pushing for a quarterly review of the promised purchases since it will be easy for China to renege on the deal in the future.
Kudlow's Comments Supportive for Gold Prices
Helping to underpin gold prices by creating more uncertainty are comments from White House Economic advisor Larry Kudlow, who on Tuesday downplayed reports of a tariff delay, noting the Trump Administration could still move forward with new levies targeting Chinese goods.
"The reality is those tariffs are still on the table, the December 15 tariffs, and the president has indicated if the short strokes remaining in negotiations do not pan out to his liking that those tariffs could go back into place," Kudlow said at a Wall Street Journal conference.
"So, they could not, but they also could. There is no definitive decision on that yet, Kudlow, director of the National Economic Council, added.
Gold prices could remain rangebound throughout Tuesday's session unless there is blockbuster news regarding the new tariffs, a trade deal or extremely hawkish comments from the Fed.
I don't expect the Fed to say anything that could send gold prices skyrocketing, but policymakers could say something that could drive prices sharply lower.
Losses could be limited, however, because of the uncertainty surrounding the trade deal and the December 15 tariffs.
This article was originally posted on FX Empire