Gold Under Pressure, Testing Support at $1300

Gold is flat on Monday, continuing to show little activity as we start the new week. The spot price stands at $1302.67 per ounce in the European session. There is only one US release on Monday, NAHB Housing Market Index. The markets are not expecting any change from the previous release.

Gold prices remain above the key $1300 level, as the violence continues in Ukraine and the Middle East. In eastern Ukraine, more fighting has been reported between Ukrainian forces and pro-Russian separatists, and large numbers of Russian forces remain close to the border. In Iraq, Kurdish forces, aided by US air strikes, are battling with Islamic State militants. As political turmoil continues in Iraq, the national government is becoming increasingly irrelevant. In Gaza, a ceasefire between Israel and Hamas is set to expire late Monday, with negotiations over a long-term agreement continuing in Egypt. Gold is sensitive to geopolitical developments, so the safe-haven metal could rise in price if nervous investors decide to dump their US dollars.

With the US continuing to suffer from low inflation levels, markets expectations have been low for key inflation indicators. On Friday, PPI, the primary gauge of inflation in the manufacturing sector, slipped to 0.1%, down from 0.4% a month earlier. This matched the estimate. Weak inflation is one reason why the Federal Reserve is in no rush to raise interest rates, as low inflation points to slack in the economy. Meanwhile, US Preliminary UoM Consumer Sentiment slipped to 79.2 points, its lowest level since October. This follows weak retail sales numbers earlier in the week. This means that an improvement in the US labor market has not translated into stronger consumer confidence and spending, which are critical for economic growth.

Elsewhere in the US, Unemployment Claims came in higher than expected. The indicator climbed to 311 thousand, marking a six-week high. The estimate stood at 307 thousand. Employment indicators are being closely scrutinized by analysts, as the strength of the labor market is one of the most important factors influencing the Federal Reserve regarding the timing of an interest rate hike. A rate increase is expected by mid-2015, but stronger economic data, especially on the employment front, could hasten a move by the Fed. Earlier in the week, JOLTS Job Openings hit its highest level in 13 years, although it too missed expectations.

 

XAU/USD for Monday, August 18, 2014

XAU/USD August 18 at 11:35 GMT

XAU/USD 1302.67 H: 1303.66 L: 1297.38

 

XAU/USD Technical

S3 S2 S1 R1 R2 R3
1252 1275 1300 1315 1331 1345

 

  • XAU/USD dipped below the $1300 level in the Asian session but bounced back above this line. The pair is almost unchanged in European trade.
  • 1315 remains an immediate resistance line. 1331 is stronger.
  • On the downside, 1300 remains fluid. 1275 is next.
  • Current range: 1300 to 1315.

Further levels in both directions:

  • Below: 1300, 1275, 1252 and 1240
  • Above: 1315, 1331, 1345 and 1361

 

OANDA’s Open Positions Ratio

XAU/USD ratio is pointing to gains in long positions on Monday. This is not consistent with the movement of the pair, as gold is almost unchanged. The ratio continues to have a substantial majority of long positions, indicative of trader bias towards gold posting gains.

 

XAU/USD Fundamentals

  • 14:00 US NAHB Housing Market Index. Estimate 53 points.

*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.