Gold Under Pressure After Hawkish Fed Minutes

Gold prices are lower on Wednesday, as the metal has slipped to two-month lows. The spot price stands at $1281.34 per ounce in the European session. On the release front, it’s a busy day in the US, led by two key events – Unemployment Claims and the Philly Fed Manufacturing Index. On Wednesday, the Federal Reserve released its minutes, and the hawkish tone gave a boost to the US dollar and pushed gold prices lower.

In a highly anticipated event, the Federal Reserve released its policy meeting minutes on Wednesday. The minutes were hawkish in tone, with the Fed saying that an interest rate hike could come sooner rather than later if employment numbers continue to improve. The Fed said that the economy continues to improve, but the QE program, which is scheduled to wind up in October, will not be accelerated. Once the asset purchase scheme is terminated, the guessing game as to a rate hike will only intensify.

The US economy has been moving in the right direction, but inflation numbers in the US remain at very low levels. On Tuesday, CPI and Core CPI, the primary gauges of consumer inflation, both posted paltry gains of 0.1%. These weak readings come on the heels of PPI, a manufacturing inflation index, which also came in at 0.1% last month. 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 housing numbers were sharp on Tuesday. Building Permits improved to 1.05 million, beating the estimate of 1.00 million. Housing Starts jumped to 1.09 million, easily beating the estimate of 0.97 million.

Financial leaders and central bankers from around the world will gather in Jackson Hole, Wyoming for a conference which starts on Thursday. This will be Janet Yellen’s first appearance as Fed chair at the conference. There is speculation that Jackson Hole could be a currency event, which would be a marked departure from the conference’s usual focus on the US labor market and monetary policy. If this is the case, we could see a sharp reaction from the currency markets. The markets will be listening closely to Yellen’s remarks at the conference.

 

XAU/USD for Thursday, August 21, 2014

XAU/USD August 21 at 11:35 GMT

XAU/USD 1281.34 H: 1290.27 L: 1271.54

 

XAU/USD Technical

S3 S2 S1 R1 R2 R3
1240 1252 1275 1300 1315 1331

 

  • XAU/USD lost ground in the Asian session. The pair is unchanged in European trade.
  • 1300 has strengthened in resistance as the pair trades at lower levels.
  • 1275 is providing weak support. 1252 is stronger.
  • Current range: 1275 to 1300.

Further levels in both directions:

  • Below: 1275, 1252, 1240 and 1210
  • Above: 1300, 1315, 1331 and 1345

 

OANDA’s Open Positions Ratio

XAU/USD ratio is pointing to gains in short positions on Thursday. This is not consistent with the movement of the pair, as gold has posted losses. The ratio continues to have a substantial majority of long positions, indicative of trader bias towards gold reversing directions and moving higher.

 

XAU/USD Fundamentals

  • 12:30 US Unemployment Claims. Estimate 302K.
  • 13:45 US Flash Manufacturing PMI. Estimate 55.7 points.
  • 14:00 Eurozone Consumer Confidence. Estimate -9 points.
  • 14:00 Philly Fed Manufacturing Index. Estimate 19.7 points.
  • 14:00 US Existing Home Sales. Estimate 5.01M.
  • 14:00 US CB Leading Index. Estimate 0.6%.
  • 14:30 US Natural Gas Storage. Estimate 83B.
  • Day 1 – Jackson Hole Symposium.

*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.