Gold in Holding Pattern Ahead of FOMC Statement

Gold is steady on Wednesday, trading at $1116.58 an ounce in the North American session. On the release front, US News Home Sales surged to 544 thousand, well above expectations. Crude Oil Inventories posted a surplus of 8.4 million, much higher than the estimate. All eyes are on the Federal Reserve, which will issue its monthly policy statement and set the benchmark interest rate later in the day.

Gold has impressed in January, posting strong gains of over five percent. The metal has benefited from the turmoil in the markets due to the plunge in oil prices and the Chinese slowdown, which has seen Chinese stock markets slide and Chinese GDP dip lower. Jittery investors have dumped risk assets and snapped up gold, traditionally a safe-haven asset. Gold prices have climbed this week, as the Federal Reserve appears unlikely to raise rates at the conclusion of its policy meeting later on Wednesday. This is bullish for gold, since higher yields make the US dollar more attractive to investors. The metal is currently trading close to 3-month highs against the US dollar.

Will Janet Yellen and Company surprise the markets on Wednesday? The Federal Reserve will issue its policy statement and is expected to maintain interest rates at the current level of 0.25%. Economic conditions have changed significantly since the Fed raise rates in mid-December, with global stock markets down and oil prices sharply lower since the historic rate hike in December. According to Morgan Stanley Morgan chief economist Ellen Zentner, financial conditions have tightened by the equivalent of four rate hikes. The Fed will likely try to sound positive in its statement, even though weaker economic conditions mean that the central bank could hold off from further tightening until mid-2016 or even later. The collapse of oil prices has contributed to the weak inflation picture in the US, with current inflation levels well below the Fed target of 2.0%. Low inflation, indicative of slack in the economy, remains a significant concern for Fed policymakers, who are unlikely to approve another rate hike without an upturn in inflation.

XAU/USD Fundamentals

Wednesday (Jan. 27)

• 10:00 US New Home Sales. Estimate 501K. Actual 544K
• 10:30 US Crude Oil Inventories. Estimate 3.8M. Actual 8.4M
• 14:00 FOMC Statement
• 14:00 Federal Funds Rate. Estimate <0.50%

Upcoming Key Events

Thursday (Jan. 28)

• 8:30 US Core Durable Goods Orders. Estimate 0.0%
• 8:30 US Unemployment Claims. Estimate 281K

*All release times are EST

*Key events are in bold

XAU/USD for Wednesday, January 27, 2016

XAU/USD January 27 at 11:25 GMT

Open: 1116.58 Low: 1114.87 High: 1122.28 Close: 1116.58

XAU/USD Technical

• XAU/USD has shown limited movement throughout the day
• There is resistance at 1134
• 1098 is providing 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

XAU/USD ratio is showing little movement, as long positions continue to command a solid majority (65%). This is indicative of strong trader bias towards gold prices continuing to move 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.