Metals Stocks: Gold extends decline below $1,500 as Fed meeting looms

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Gold edged lower Tuesday, a day after slipping back below the psychologically important level of $1,500 an ounce.

“Gold has stumbled into the trading week under pressure thanks to the improving market mood and risk-on sentiment,” said Lukman Otunuga, senior research analyst at FXTM, in a note. “Given how prices are trading below the $1,500 level, further downside could be on the cards in the short term.”

Gold for December delivery GCZ19, -0.44%  on Comex fell $8.20, or 0.6%, to $1,487.60 an ounce, while December silver SIZ19, -0.76%  declined 15.6 cents, or 0.9%, to $17.72 an ounce.

A significant drop in gold demand for the Hindu festival of lights known as Diwali, which saw its major celebrations over the weekend, was among the reasons for weakness in gold, said James Hatzigiannis, senior strategist at Long Leaf Trading Group, adding that demand reportedly dropped by 40% compared with sales a year earlier.

Meanwhile, U.S. President Donald Trump indicating he expects to sign phase one of the trade deal with China sooner then expected “drove equities up and the investor sentiment is more risk-on,” said Hatzigiannis.

“However, this is not a solid drive up in equities,” given low trading volume tied to the move up in equities to record highs recently, he said. That “means there is a lack of confidence in this equity markets move up.” Benchmark U.S. stock indexes traded modestly lower in Tuesday dealings.

Attention is on the Federal Reserve, which began its two-day meeting on Tuesday. The central bank is widely expected to announce a quarter percentage point interest-rate cut when the meeting concludes Wednesday, with investors focusing on clues to policy makers’ appetite for further easing in the months and year ahead.

The “next big catalyst for gold is [Federal Reserve Chairman Jerome] Powell’s speech after the rate decision and any indications of future monetary policy and of course any reports on Brexit, and the U.S./China trade front,” said Hatzigiannis.

In regard to Brexit, with the leader of the U.K. opposition Labour Party on Tuesday telling fellow lawmakers he would back an early election now that the prospect of the country crashing out of the European Union without a deal has been taken off the table. Conservative Prime Minister Boris Johnson was set to once again ask lawmakers to approve an early election on Dec. 12.

“The result of any election could be all over the map,” said Brad Bechtel, currency analyst at Jefferies, in a note. “A Johnson win would be a soft Brexit, a Johnson coalition also probably soft Brexit but a Corbyn win or Labor-led coalition is probably a vote for no Brexit and may even lead to a second referendum.”

In other metals trade, December palladium PAZ19, -1.45%  fell 1.4% to $1,754.90 an ounce, while January platinum PLF20, +0.28%  was up 0.2% at $921 an ounce.

December copper HGZ19, -0.04%  was flat at $2.683 a pound.