Gold Rises as Fed Cool Towards Rate Hike

Gold has edged higher on Thursday, following gains on Wednesday in response to the Federal Reserve’s policy statement. In the European session, the spot price stands at $1281.44 per ounce. On the release front, there are two key releases on the calendar – Unemployment Claims and the Philly Fed Manufacturing Index.

The Federal Reserve continued to trim its QE program, reducing the scheme by $10 billion, to $35 billion/month. If all goes as planned, the Fed could wind up QE in the fall. The Fed also hinted that interest rates will continue to stay low for the foreseeable future, which likely means that we won’t see any rate hikes before the first quarter of 2015. With regard to economic activity, the Fed noted that the recovery is continuing, but it reduced its forecast of economic growth to 2.1-2.3%, down from an earlier forecast of around 2.9 percent. The bottom line? There were no dramatic items in the Fed statement, with one analyst describing current Fed policy as “steady as she goes”. The US dollar has responded with losses against its major rivals, and the greenback’s losses have meant gains for gold.

The news out of the US was mixed on Tuesday. Building Permits dropped to 0.99M, well below the estimate of 1.07M. On the inflation front, CPI moved up modestly, posting a gain of 0.3%. This was the strongest gain we’ve seen since January 2013. CPI followed suit, climbing to an eleven-month high. The index rose to 0.4%, beating the estimate of 0.2%. The Fed policy statement took note of the weak inflation levels, which are nowhere near the Fed’s target of 2%.

In Iraq, the situation remains tense, as militants linked to al-Qaeda continue to push back government troops and expand the territory under their control. The insurgents are only about 60 kilometers from the capital of Baghdad, and the situation has quickly escalated into a major crisis for both the Iraqi and US governments. Gold prices jumped to three-week highs early in the week, as concerned investors snapped up gold, which is considered a hedge during periods of geopolitical instability. We could see gold prices climb even higher if the situation continues to deteriorate.

 

XAU/USD for Thursday, June 19, 2014

XAU/USD June 19 at 11:00 GMT

XAU/USD 1281.44 H: 1282.77 L: 1275.97

 

XAU/USD Technical

S3 S2 S1 R1 R2 R3
1250 1260 1275 1300 1315 1331

 

  • Gold has edged higher on Thursday.
  • 1275 has reverted to a support role as XAU/USD moves higher. This is followed by a support level at 1260.
  • The round number of 1300 is the next resistance line. This is followed by resistance of 1315.
  • Current range: 1275 to 1300.

Further levels in both directions:

  • Below: 1275, 1260, 1250 and 1230
  • Above: 1300, 1315, 1331 and 1354

 

OANDA’s Open Positions Ratio

XAU/USD ratio is unchanged on Thursday. This is not consistent with what we are seeing from the pair, as gold has edged upwards. The ratio is made up of a substantial majority of long positions, reflecting a strong trader bias towards gold moving higher.

Gold has posted slight gains on Thursday. XAU/USD is unchanged in the European session.

 

XAU/USD Fundamentals

  • 12:30 US Unemployment Claims. Estimate 316K.
  • 14:00 US Philly Fed Manufacturing Index. Estimate 14.3 points.
  • 14:00 US CB Leading Index. Estimate 0.6%.
  • 14:30 US Natural Gas Storage. Estimate 112B.

*Key releases are highlighted in bold

*All release times are GMT

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Kenny Fisher

Kenny Fisher

Currency Analyst at Market Pulse
Kenny Fisher joined OANDA in 2012 as a Currency Analyst. Kenny writes a daily column about current economic and political developments affecting the major currency pairs, with a focus on fundamental analysis. Kenny began his career in forex at Bendix Foreign Exchange in Toronto, where he worked as a Corporate Account Manager for over seven years.