Gold jumps to $1315 on softer USD; Fed rate outlook holds the key

   •  A modest USD retracement helps build on overnight rebound from 2-1/2 week lows.
   •  The pace of further Fed rate hikes in 2018 should help determine the near-term trajectory.

Gold gained some fresh positive traction on Wednesday and has now recovered a major part of previous session's slide to over 2-week lows. 

The precious metal continues to find some dip-buying interest ahead of the very important 200-day SMA, with concerns over a potential global trade war and runaway US budget deficit spending helping keep the floor, at least for the time being.

Adding to this, a modest US Dollar retracement was further underpinned demand for dollar-denominated commodities - like gold and collaborated to the up-move. 

It, however, remains to be seen if the up-move is backed by any genuine buying or is solely led by some repositioning trade ahead of today's key event risk - the highly anticipated FOMC decision. 

With a 25 bps interest rate hike seen as a done deal, investors will be looking at the forward guidance and the pace of rate increases in 2018 in order to determine the next leg of a directional move for the non-yielding yellow metal.

Technical outlook

Omkar Godbole, Analyst and Editor at FXStreet writes: “The metal looks set to test $1,286 and could possibly break lower towards $1,260 if the Fed lifts neutral rates (revises 2019/2020 rate forecasts higher).”

“On the higher side, only a close above $1,330 (50-day MA) would abort the bearish view and allow a re-test of $1,340”, he further adds.