Gold Wavers Before Fed Meets as Equities Soar, Dollar Slides

Gold wavered ahead of a Federal Reserve meeting that’s expected to see the central bank maintain its dovish stance, while investors weigh a slump in the dollar and surge in equities.

The S&P 500 rose to a 15-week high on Monday, bringing its rally from the March low to almost 45%, amid optimism over a recovery in growth as coronavirus-related lockdowns ease. A gauge of the dollar was little changed after its longest run of declines since 2011.

Bullion has climbed 12% this year as central banks lowered interest rates to cushion economies from the impact of the coronavirus pandemic. In the two-day gathering that ends Wednesday, Fed Chairman Jerome Powell is expected to continue to deploy the full suite of liquidity backstops — even if there is little need for some at the moment — and leave rates above zero.

“Despite this risk-on rally, gold does look ready to defend this $1,700 handle,” said Sean Maclean, research strategist at Pepperstone Ltd. “It’s a huge technical level, and the outlook for gold really does remain as bullish as ever,” he said. Treasury yields are “cooling again, likely on investors buying a dip after that stellar jobs report Friday. But, although nominal yields have mostly risen this month, real yields remain negative as U.S. inflation expectations have moved higher.”

Others have also highlighted gold’s bullish outlook. Scott Minerd, the chief investment officer of Guggenheim Investments, thinks investing in the metal could help offset any concern about the status of the dollar as a global reserve currency as the Fed responds to the global economic downturn. Separately, Stephen Roach, a senior lecturer at Yale University and a former chief economist at Morgan Stanley, warned “a crash in the dollar could well be in the offing”.

Spot gold declined 0.2% to $1,695.96 an ounce at 12:44 p.m. in Singapore after advancing 0.8% Monday. The Bloomberg Dollar Spot Index held near its lowest since March. Holdings in bullion-backed exchange-traded funds fell for a third day.

In other precious metals, silver dropped 1.3%, platinum fell 0.4%, and palladium advanced 0.3%.

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