Gold keeps the red below $1250, FOMC holds the key

Gold pared majority of its early losses and recovered back closer to $1250 level, albeit held in negative territory for the second consecutive session.

The precious metal extended its retracement from one-month highs touched at the beginning of this week and dropped to three-day lows to test $1244-43 horizontal support. However, a fresh wave of greenback selling interest, with the key US Dollar Index giving up all of its recovery gains to 94.00 handle extended support and helped limit further losses for dollar-denominated commodities - like gold. 

Adding to this, a softer tone around the US Treasury bond yields further benefitted the non-yielding yellow metal and collaborated to the recovery move. It, however, remains to be seen if the commodity is able to build on the momentum to move back above $1250 level as market participants keenly await the Federal Reserve's update on interest-rate policy. 

The central bank is widely expected to leave its benchmark interest rate unchanged and hence, investors' focus would be the accompanying statement, where details about the Fed's plan to start with its balance sheet normalization policy would help determine the next leg of directional move for the commodity.

   •  Fed: Staying on track of policy normalization - ING

Technical levels to watch

On a sustained move above 100-day SMA hurdle near $1248 region, leading to a subsequent momentum beyond $1250 level could extend the appreciating move towards $1255 horizontal resistance. A follow through buying interest has the potential to continue lifting the metal towards its next major hurdle near $1265-66 area.

Meanwhile, on the downside, sustained weakness below $1244-43 support is likely to accelerate the fall towards $1240 level, below which the commodity might turn vulnerable to head back towards testing the key 200-day SMA support near $1230 region.