During the Asian session on Wednesday, there were fresh reports of a larger than expected Japanese fiscal stimulus which put upward pressure on the Nikkei index and weakened the yen. There was some downward pressure on gold prices, although the speculation over additional monetary easing tended to negate the effect.

Gold overall was able to find support close to the $1,315 area with solid support on dips even though investor interest had dipped with a further dip in SPDR Gold Share holdings of 4.5 tonnes.

The headline US durable goods report was significantly weaker than expected with a June decline of 4.0% from a revised 2.8% decline previously and an expected fall of 1.3%. The underlying data was also weaker than expected with a 0.5% monthly retreat.

US bond prices rallied after the data with 10-year yields dropping back through the 1.55% level which helped underpin precious metal prices, especially as European bond markets also rallied very strongly. The dollar held steady against the Euro and made net headway against the yen despite retreating from its best levels.

Oil prices fell sharply following the latest inventories data and US equities edged lower. Overall, gold prices rallied above $1,325 ahead of the FOMC statement.

As expected, the Federal Reserve left interest rates on hold following the latest policy meeting.

In the statement, the Federal Reserve Open Market Committee (FOMC) stated that near-term risks to the economic outlook have diminished with strength in household spending, but weak investment.

The comments on inflation were little changed from the previous statement and there were no explicit hints surrounding the September meeting, although the overall tone suggested a greater probability of a move as long as the inflation outlook did not deteriorate once again.

The dollar moved higher in immediate response to the statement with falling Treasury prices which also triggered an immediate spike lower in gold to near $1,320. USD/JPY failed to break above 106.00 and reversed initial gains while Treasury futures also rebounded as the statement was not considered overtly hawkish. This allowed gold prices to more than recover the initial move with a challenge on resistance above $1,330 on expectations that overall global monetary policy would stay very loose.

Reaction to the Fed statement will continue to be an important feature on Thursday with markets also looking ahead to Friday’s Bank of Japan policy announcement with the potential for choppy trading conditions.