Forexpros – Gold futures plunged lower Tuesday, as the Federal Reserve’s minutes revealed that the central bank sees no need for further monetary easing
On the Comex division of the New York Mercantile Exchange, gold futures for June delivery traded at USD1,643.45 a troy ounce during U.S. afternoon trade, plunging 2.18%.
Gold futures were likely to find support at USD1,627.75 a troy ounce, the low from March 22 and resistance at USD1,699.55, the high from March 27.
The Fed revealed in its minutes that it sees no need to extend monetary easing however it remains concerned about the global economic slowdown.
Gold prices lost nearly 5% in the three sessions following March’s Fed meeting after the central bank gave an upbeat assessment of the U.S. economy, which reduced expectations for a third round of monetary easing in the U.S.
However, Goldman Sachs believes the Fed will do another round of quantitative easing, but said the markets appear to anticipate a less than 50% chance of further easing.
Goldman said there is a case to be made for the Fed to announce further easing at its next meeting in April, since that is just ahead of the expiration of the Operation Twist program.
Later this week, attention will turn to U.S. non-farm payrolls data, which could shed further light on the strength of the U.S. economy and the need for further monetary easing in the U.S.
French lender Societe Generale said in a report earlier that fears that the U.S. economy may lose momentum in the second half of the year could build the case for a third round of stimulus from the Fed.
“We consider the drop in the gold price to be a buying opportunity as we expect the U.S. economy to surprise on the downside over coming months, which should result in the implementation of QE3,” the bank said.
Gold investors will be closely watching U.S. data in the second quarter for clues as to the likelihood of a fresh round of monetary easing, which could potentially hurt the dollar and support gold.
Analysts at Bank of America Merrill Lynch said in a report that, “U.S. growth is set to slow in the second quarter. A cyclical slowdown is typically supportive to gold prices for a host of reasons, including a reduction in the upside to prices of cyclical asset classes.”
“The impact of a renewed slowdown in U.S. growth on gold prices may be even more pronounced this time around because discussions around QE3 will in all likelihood re-emerge, as the Fed may not stand by idle as activity slows,” it added.
Speculation that jewelers in India were expected to reopen for business provided support for prices on Monday, but the All India Gems & Jewellery Trade Federation said earlier that jewelers in the nation extended a strike for an 18th day Tuesday.
Most Indian jewelry and gold shops have remained closed since March 18 after the country announced a 4% import duty hike on gold and a 0.3% excise tax on most gold jewelry.
Elsewhere on the Comex, silver for May delivery fell 1.38% to trade at USD32.64 a troy ounce, while copper for May delivery gave back 0.69% to trade at USD3.89 a pound.
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