Gold Punches Above $1100, CPI Dips

Gold prices have jumped on Wednesday, as the base metal trades at $1103.48 an ounce in the North American session.  On the release front, CPI posted a weak reading of 0.1%, short of the estimate of 0.0%. Building Permits dipped in December, but managed to beat expectations. On Thursday, the US will release two key events, Unemployment Claims and the Philly Fed Manufacturing Index.

Low inflation levels in the US remain a concern for Federal Reserve policymakers, who must decide whether another rate hike would be appropriate in early 2016. There was disappointing news on the inflation front on Wednesday, as the Consumer Price Index, the primary gauge of consumer inflation, dropped 0.1%, short of the estimate of 0.0%. Core CPI also softened, posting a gain of 0.1%. This was short of the forecast of 0.2%. Will these weak numbers dampen Fed enthusiasm for a rate hike? There is speculation that the Fed could make a move in March, contingent on the US economy continuing to show strong numbers. At the same time, minutes from the Federal Reserve Policy meeting in December indicated that some policymakers are concerned that the inflation picture may not improve anytime soon, and it would be premature to raise rates again before inflation levels improve.

Gold has surged 4.0 percent in the month of January, as jittery investors have shunned risky assets in favor of safe-haven assets like gold. Jittery markets have nervously watched as China, the world’s second largest economy, continues to show signs of slowdown. Chinese GDP for the fourth quarter showed another drop, as the key indicator dipped to 6.8%, shy of the forecast of 6.9%. Annual GDP for 2015 came in at 6.9%, the weakest gain in 25 years. A softer Chinese economy and plunging oil prices are having major repercussions in the global stock markets and currency markets, and this has spelled good news for the shiny metal.

XAU/USD Fundamentals

Wednesday (Jan. 20)

  • 8:30 US Building Permits. Estimate 1.20M. Actual 1.23M
  • 8:30 US CPI. Estimate 0.0%. Actual -0.1%
  • 8:30 US Core CPI. Estimate 0.2%. Actual 0.1%
  • 8:30 US Housing Starts. Estimate 1.19M. Actual 1.15M

Thursday (Jan. 21)

  • 8:30 US Philly Fed Manufacturing Index. Estimate -3.1 points
  • 8:30 US Unemployment Claims. Estimate 281K

*All release times are EST

*Key events are in bold

XAU/USD for Wednesday, January 20, 2016

Forex Rate Graph 21/1/13

XAU/USD January 20 at 12:20 GMT

Open: 1087.84 Low: 1087.84 High: 1104.18 Close: 1103.48

XAU/USD Technical

S3 S2 S1 R1 R2 R3
1043 1080 1098 1134 1151 1175
  • XAU/USD posted slight gains in the Asian session and continued to move higher in the European session. The pair has posted further gains in North American trade.
  • There is resistance at 1134
  • 1098 is providing weak support
  • Current range: 1098 to 1134

Further levels in both directions:

  • Below: 1098, 1080, 1043 and 1024
  • Above: 1134, 1151 and 1175

OANDA’s Open Positions Ratio

The XAU/USD ratio is showing little change on Wednesday. Long positions retain a solid majority (71%), indicative of strong trader bias towards gold prices continuing to move higher.

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.

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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.