Gold was hit sideways and then fell to a more than three-month low Tuesday as oil prices declined by more than $3, the U.S. dollar gained strength and continued expectations for the Federal Reserve to cut interest rates Wednesday for the last time caused pause for the yellow metal.
Gold dropped $18.70 or 2.1 percent to $876.80 an ounce on the New York Mercantile Exchange. That was the lowest closing price for floor trading since January 7. For a time the price had dropped to a low of $873.60 — a level not seen since January 22.
Tomorrow’s Fed meeting is likely an indicator of gold’s near-term future. Should the Fed cut interest rates for the last time and signal their intent to hold rates or raise the potential for their reversal later in the year, gold could take its cue and move further downward.
"Anticipation about the Fed meeting’s eventual results turned into apprehension that the massive slide in rates seen since September will not only come to an end shortly, but will likely be partially reversed after a period of no action," said Jon Nadler, senior analyst at Kitco Bullion Dealers.
Lower rates tend to weaken the dollar, making gold an attractive investment. However, if the market has already accounted for the Fed’s expected rate cut and the holding of interest rates, gold may very well struggle and fall further.
"The market now appears at risk of coming full circle and revisiting the previous record of $845, and would thus be wiping out its year-to-date gains," said Jon Nadler.
Data today also revealed that consumer confidence hit a five-year low, housing prices declined 12.5% in February, and foreclosures were up 23% for the first quarter compared to the fourth quarter of last year.
In short, what the Fed says tomorrow can potentially guide investors of gold into specific short term actions, but long term there are too many factors in play, making that crystal ball cloudy when it comes to gold.
The Federal Reserve’s interest-rate statement will be released on Wednesday at 2:15 p.m. (ET).
One thing is certain. Unlike the sentiment of just a few weeks back, the optimism in gold rising and breaking new records has fallen. Caution is in the air.