Gold advances as yields weaken ahead of Fed verdict

Lower interest rates increase the appeal of holding gold.

Gold extended gains on Wednesday, as subdued Treasury yields boosted the bullion’s appeal, while investors awaited the outcome of U.S. Federal Reserve’s meeting for cues to its monetary policy outlook.

Spot gold gained 0.2% at $1,982.49 per ounce as of 9:50 a.m. ET (1450 GMT). U.S. gold futures rose 0.2% to $1,997.70.

U.S. 10-year Treasury yields retreated further after inflation data. In the 12 months through November, the U.S. producer prices rose 0.9% after advancing 1.2% in October. [USD/][US/]

PPI data was slightly cooler-than-expected, and traders are quickly moving focus to this afternoon’s FOMC statement from Fed Chair Jerome Powell, said Jim Wyckoff, senior analyst at Kitco Metals.

The Fed’s rate-setting policy committee will release its policy statement and interest rate decision at 1900 GMT, followed by Chair Jerome Powell’s press conference at 1930 GMT.

"The marketplace expects Powell at his press conference to suggest the Fed is going to remain vigilant on fighting inflation, which other traders in the past have called a kind of hawkish pause," Wyckoff added.

The Fed is expected to leave rates unchanged at 5.25%-5.50%, with the CME FedWatch Tool pricing in about a 79% chance of a rate cut in May.

"The key will be the Fed’s 2024 median dot. The market wants three cuts, I don’t think they will get that. But, I see a bounce for precious given the recent drop unless the Fed is really hawkish," said Tai Wong, a New York-based independent metals trader.

Lower interest rates increase the appeal of holding gold.

Gold’s trajectory could also be influenced by policy meetings of the European Central Bank and the Bank of England on Thursday.

Silver slipped 0.7% to $22.60 per ounce, while platinum fell 0.3% to $926.51, and palladium lost 0.2% to $977.39.