Forexpros – Gold futures came under pressure during U.S. morning trade on Wednesday, slumping to a six-day low as investors sold the precious metal ahead of the outcome of a policy-setting meeting by the Federal Reserve later in the day.
Market sentiment was boosted after the announcement of a Greek coalition deal, as well as a decline in Spanish borrowing costs.
On the Comex division of the New York Mercantile Exchange, gold futures for August delivery traded at USD1,604.55 a troy ounce during U.S. morning trade, dropping 1.15%.
It earlier fell by as much as 1.2% to trade at USD1,601.05 a troy ounce, the lowest since June 12.
Gold futures were likely to find support at USD1,559.35 a troy ounce, the low from June 8 and near-term resistance at USD1,642.15, the high from June 6.
Gold futures fell to the lowest level of the day after Evangelos Venizelos, the head of Greece’s Pasok party, announced that a coalition government had been formed, which will allow Athens to resume negotiations with creditors on its international bailout deal.
Venizelos said the make-up of the cabinet would be specified later Wednesday.
Meanwhile, market participants were looking ahead to the outcome of the Federal Reserve’s policy setting meeting later in the day, amid growing hopes policy makers will announce measures to stimulate the world’s largest economy.
A growing number of Fed watchers expect the central bank to extend its Operation Twist program over the more extreme option of full-blown quantitative easing. The current USD400 billion Twist program is set to expire at the end of June.
Under Operation Twist, the Fed sells short-dated Treasury instruments and buys longer-dated Treasury’s in tandem with the aim of pushing down long-term interest rates.
Quantitative easing in particular would send gold soaring as it would signal the Fed is willing to make more drastic steps to steer the economy away from deflationary decline and towards investment and hiring by weakening the dollar via liquidity injections.
The Fed’s Open Market Committee will release a policy statement at the end of the meeting. The announcement was to be followed by a press conference with Fed Chairman Ben Bernanke to discuss the monetary policy decision.
Gold gained as much as 15% earlier this year to hit USD1,790 an ounce after the Fed said in January it would keep interest rates near zero until at least late 2014 and indicated that it could introduce a fresh round of asset-purchases.
However, prices have lost almost 9% since late February, amid growing concerns the European debt crisis has been escalating, which has fueled demand for the yellow metal’s hedge, the greenback.
From a technical standpoint, market analysts said the yellow metal must break above its one-month high in the USD1,635-USD1,640-area to rise further.
Gold futures ended modestly lower Tuesday after prices failed to break above key resistance close to the USD1,635-level, triggering fresh sell orders. Bullion rose toward that level several times recently but failed to break higher in each attempt.
Elsewhere on the Comex, silver for July delivery fell 1% to trade at USD28.08 a troy ounce, while copper for July delivery shed 0.6% to trade at USD3.412 a pound.
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