Precious metals witnessed profit taking ahead of the US Federal Reserve Policy meet yesterday after gold traded as high at 1611.00. Gold prices registered marginal decline, however they held above the key level of US$1,600/ounce. US Federal Reserve stuck to its stance on bond buying and interest rates as well as its unemployment target. The FOMC stated that it would keep interest rates unchanged as long as the jobless rate was above 6.5%. It further elaborated that it does not expect the unemployment rate to fall below the specified levels until 2015 indicated that stimlus could remain ongoing for that period of time. The Fed did not mention any sort of roll back or exit strategy. On growth front, Bernanke stated that he expects moderate recovery, although downside risks to the economic outlook persists. The Fed reduced its growth expectations. During his press conference Mr. Bernanke noted the Cyprus situation but said that he does not see any effects on the US economy or recovery.
The uncertainty regarding Cyprus situation continue to linger, which is effectively providing some support to the gold prices. Cyprus has extended a bank shutdown to next week and considered nationalizing pension funds. Meanwhile, Cypriot leadership is seeking aid from Russia after rejecting European proposals. Cyprus’s finance minister met Russian counterparts and the meeting is reported to have made some progress. Gold prices were down as fears eased that the crisis in Cyprus may not spread further in the euro zone. EU Ministers are now downplaying the one time bank tax saying that Cyprus was a unique case, but commentators and analysts say that the EU leadership has permanently changed trust in banks. Savers may slowly look for more secure places to store their saving out of the control of governmental taxes and levies, especially in countries that might need bailout.
Gold holdings of SPDR gold trust, the largest ETF backed by the precious metal, increased to 1,222.16 tons, as on March 20. Silver holdings of ishares silver trust, the largest ETF backed by the metal, declined to 10,583.36 tons, as on March 20. The dollar index traded at 82.827 in recent action, little moved from 82.893 in late trading on Tuesday. TheUS dollar rallied against the yen on Wednesday, after a decision by the Federal Reserve to continue its aggressive monetary easing fueled optimism about the US economic recovery. The euro rebounded from a 4-month low against the dollar as fears about a financial meltdown in Cyprus eased, with the small island country pleading for a new loan from Russia.
Base metals managed moderate recovery, aided by US Federal Reserve persistence with bond buying program. The complex is expected to trade firm today, deriving cues from positive manufacturing numbers from China. The HSBC has reported that China Flash PMI for March has advanced to 51.7, as compared with a final reading of 50.4 in February. Silver advanced 36 points to trade at 28.853 while copper is trading in the green at 3.459. -FxEmpire