Gold Flirts With $1050 in Aftermath of Fed Hike

Gold prices have steadied on Friday, as the base metal trades at $1054.00 per ounce in the European session. Taking a look at economic news, it’s a quiet wrap-up to the week, with just one minor PMI report on the schedule. The markets will also be listening closely to remarks from FOMC member Jeffrey Lacker, the first Federal Reserve Bank President to speak publicly after the historic rate hike of 0.25 percent.

On Wednesday, the Federal Reserve raised interest rates by 0.25 percent, the first upward move since June 2006. The Fed dropped a broad hint in its October policy meeting about a rate hike before the end of 2015, and predictably, this led to tremendous speculation in the markets. To the credit of Fed chief Janet Yellen and her colleagues, the Fed put into place a carefully-crafted strategy, sending a steady of stream of signals that it was intending to tighten monetary policy, if economic conditions remained positive. This gave the markets ample time to price in a rate hike, although investors nonetheless gave gold a thumbs-down on Thursday, as gold prices slipped about 1.5 percent and briefly dropped below the $1050 level. Although gold has leveled off in December, 2015 has been a year to forget for gold, with losses of close to 10 percent.

Although the small rate hike has not shaken up the currency markets and is expected to have limited economic impact, the psychological angle of the rate move cannot be overestimated, as the Fed has given the US economy a critical vote of confidence, and has indicated that additional rates are likely over the course of 2016. The Fed’s strategy contrasts sharply with the bungled approach of Mario Draghi at the ECB, who hinted that the ECB would take significant easing steps at its December meeting, but failed to deliver as the ECB did little more than extend the current QE program for another six months. This led to complete turmoil in the markets, resulting in a sharp ascent by the euro.

There was good news from the US labor market on Thursday, as Unemployment Claims fell to 271 thousand last week, down from 282 thousand. The US labor market has improved nicely, as the economy is close to full employment, with jobless claims and the unemployment rate at low levels. Impressive employment numbers was a major reason that the Federal Reserve felt comfortable pressing the rate trigger at this week’s policy meeting. Still, weak spots remain in the US economy, among them the manufacturing sector, which continues to struggle. This was underscored by the Philly Fed Manufacturing Index, a key manufacturing indicator. The index came in at -5.9 points, its third decline in four months.

XAU/USD Fundamentals

Friday (Dec. 18)

  • 14:45 US Flash Services PMI. Estimate 55.9 points
  • 18:00 US FOMC Member Jeffrey Lacker Speaks

*Key releases are highlighted in bold

*All release times are GMT

XAU/USD for Friday, December 18, 2015

Forex Rate Graph 21/1/13

XAU/USD December 18 at 10:10 GMT

XAU/USD 1054.58 H: 1058 L: 1051

XAU/USD Technical

S3 S2 S1 R1 R2 R3
980 1024 1043 1080 1098 1134
  • XAU/USD is showing limited movement in the Asian and European sessions
  • 1080 is providing resistance
  • 1043 is the next support level
  • Current range: 1043 to 1080

Further levels in both directions:

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

OANDA’s Open Positions Ratio

XAU/USD ratio continues to show little movement. Long positions continue to command a solid majority (71%), indicative of strong trader bias towards gold prices reversing directions and moving to higher levels.

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.