US Federal Reserve in focus

A one kilo Swiss gold bar and US dollars gold coins are pictured in Paris on February 20, 2020.

JOEL SAGET| AFP via Getty Images

Gold extended gains on Wednesday as global equity markets eased after a recent rally, while U.S. Treasury yields dropped ahead of the outcome of the Federal  Reserve’s meeting that is expected to shed light on the state of  the economy and further stimulus.

Spot gold was up 0.1% at $1,715.43 per ounce, as of  0248 GMT, after posting its best day in a month on Tuesday. U.S. gold futures also edged up 0.1% to $1,723.60.

“We are seeing a fairly clear risk-off sort of dynamic in the markets and I think that’s been supportive for gold as yields have fallen against that narrative over the past 24 hours,” said DailyFx currency strategist Ilya Spivak.

Asian equities slipped after most U.S. stocks pared gains made during their recent rally, which also pushed U.S. Treasury yields lower.

Investors adopted a cautious stance and are awaiting the Fed’s monetary policy statement due at 1800 GMT, followed by a press conference from Chairman Jerome Powell.

U.S. central bankers will also publish their first economic projections since the pandemic set off a recession in February.

“Gold traders would be looking to clues from the Fed as to the reality of a V-shaped economic recovery or whether stock market investors have gone ahead of themselves in assuming a V-shaped recovery,” Phillip Futures said in a note.

“If the Fed paints a picture that is negative for Wall Street, demand would shift back into gold.”

The Fed has slashed interest rates near zero and rolled out a raft of stimulus measures to limit the economic damage from Covid-19. 

Lower interest rates and widespread stimulus tend to boost demand for bullion, which is often seen as a hedge against inflation and currency debasement.

In other metals, silver gained 0.6% to $17.69 an ounce, palladium climbed 1.2% to $1,964.20, and platinum edged 0.1% higher to $838.22.

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