Gold prices fell sharply in early trading on Wednesday, with the yellow metal dropping from its highest level in 5 months. As investors and market participants await the release of the Beige book (summary of the current economic conditions commentary) from the Federal Reserve, looking for more indicators on the health of the US economy.
Gold futures for February delivery on the New York Mercantile Exchange fell $3.75 or 0.30% to trade at $1,242 an ounce, after hitting a three-month high of $1,247 an ounce on Tuesday.
The Federal Reserve is issuing its Beige despite the US financial markets closed in honor of former US President George HW Bush who died at the end of last week. The Beige book usually provides an analytical view of the current economic conditions in the markets, issued by the US Federal Reserve. If the analytical outlook in the book is positive, this may lead to support for the US dollar, whose decline in prices in the previous period led to higher gold prices because of the inverse relationship between them. The weakness of the US currency increases the attractiveness of gold for investors, because gold denominated in dollars becomes accessible to foreign currency holders.
The dollar index, which measures the strength and performance of the US currency against major currencies, rose to its highest level in early November, backed by strong US economic fundamentals and relatively rigid Fed policies, which are expected to move forward with a gradual rise in prices.
But as the markets watched the monetary policy report on December 18 and 19, the US currency came under pressure last week after Federal Reserve Chairman Jerome Powell’s remarks, which indicated a slow pace in raising interest rates.
This more pessimistic tone has prompted markets to wonder how many times the central bank will raise interest rates in 2019. Markets still expect the Federal Reserve to move forward by a quarter point this month, but they have interpreted cautious comments from policymakers to mean more tightening in monetary policy. Federal Reserve policymakers believe that the tightning in 2019 will need to be revaluated based on economic data and inflation.
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