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While investors sit on their hands ahead of the Fed’s statement at 7pm, gold is trading up $1 at $1232. The US central bank is currently operating an $85 billion-per-month bond-buying scheme, but there is a possibility it will be reduced as a way of weaning the US economy off quantitative easing (QE).
Year to date, gold has lost 25%, hit by fears the Fed will trim its bond-buying scheme. According to the Commodity Futures Trading Commission, short positions on gold futures and options are close to a seven-and-a-half-year high.
At the start of the month, gold slid down to $1210, hitting a five-month low. However, the precious metal has since managed to recoup some of its losses.
If the Fed doesn’t trim the QE package, we could see gold head towards the recent high of $1268. On the other hand, if tapering begins the $1200 level could be tested.