Gold Rally Continues on Positive NFP Report

Gold prices have steadied on Monday, as the metal trades at a spot price of $1083.04 per ounce in the European session. The base metal has enjoyed an impressive rally, climbing 3.5% since Thursday. In the US, it’s a quiet start to the week, as there are no key events on the schedule.

Gold has climbed over 3 percent over the past two days, buoyed by the ECB policy meeting and a positive Nonfarm Payrolls report in the US. On Thursday, the metal moved higher after the ECB shocked the markets in its decision not to add further monetary stimulus to kick-start the ailing Eurozone economy. The markets had expected some significant monetary measures from Mario Draghi and company, but the head of the ECB played it safe, opting to do little more than tweak current monetary policy. The ECB announced that the interest on deposits would be lowered from -0.20 to -0.30 percent, and the QE asset purchase program of EUR 60 billion/year would be extended for an additional six months, to March 2017. Given the lethargic Eurozone economy, the markets had expected much more, such as substantial increase to the asset purchase program or reductions to other interest rates. The lack of any substantial moves by the ECB clearly caught the markets by surprise.

Gold prices jumped on Friday in response to the Nonfarm Payrolls report. The key indicator dropped to 211 thousand in November, but still beat the estimate of 201 thousand. This indicator is often a market-mover, and the positive reading will lend support to Federal Reserve policymakers who are in favor of raising interest rates later this month. The Federal Reserve will obviously not confirm a widely-expected rate hike, but Fed chair Janet Yellen testified on Capitol Hill on Thursday, and signaled that a rate increase is likely in December, barring some unforeseen weak economic data before the rate decision on December 16. Earlier in the week, Yellen added that the Fed is satisfied with the progress shown by the US labor market. Persistently low inflation levels have hampered the recovery and are well below the Fed target of 2 percent, and is a key reason why the Fed did not raise rates earlier this year. However, Yellen stated that she expects inflation numbers to improve, so weak inflation is unlikely to be an impediment to an historic rate hike, with Fed Funds futures pricing in a 79% chance of an increase.

US PMI reports, key gauges of economic activity, had a disappointing week. On Tuesday, ISM Manufacturing PMI slipped to 48.6 points in November. This figure fell short of the estimate of 50.6 points, and marked the first contraction of the index since May 2013. Recent manufacturing releases were also soft, as the US manufacturing sector continues to struggle. There wasn’t any relief from ISM Non-Manufacturing PMI on Thursday, as the index slipped to 55.9 points, well short of the forecast of 58.1 points. This marked a six-week low for the indicator. The silver lining is that although the index took a hit in November, the reading was still above the 50 line, indicative of expansion.

Monday (Dec. 7)

  • 15:00 US Labor Market Conditions Index
  • 20:00 US Consumer Credit. Estimate -18.3B

Upcoming Key Releases

Tuesday (Dec. 8)

15:00 US JOLTS Job Openings. Estimate 5.59M

*Key releases are highlighted in bold

*All release times are GMT

XAU/USD for Monday, December 7, 2015

Forex Rate Graph 21/1/13

XAU/USD December 7 at 11:25 GMT

XAU/USD 1083.04 H: 1086 L: 1082

XAU/USD Technical

S3 S2 S1 R1 R2 R3
1024 1043 1080 1098 1134 1151
  • XAU/USD has showed marginal movement in the Asian and European sessions.
  • 1080 has switched to a support role.
  • 1098 is providing resistance.
  • Current range: 1080 to 1098

Further levels in both directions:

  • Below: 1080, 1043, 1024 and 980
  • Above: 1098, 1134 and 1151

OANDA’s Open Positions Ratio

XAU/USD ratio has shown an increase in short positions, which currently make up 28% of the positions. This is consistent with the strong gains by gold, which has resulted in the covering of long positions.

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.