Gold Under Pressure as Oil Improves, ECB Meeting Next

Gold continues to lose ground on Wednesday, as the base metal trades at a spot price of $1254.05 per ounce in the North American session. On the release front, US Wholesale Inventories posted a gain of 0.3%, beating expectations. US Crude Inventories rose by 3.9 million barrels, above the estimate of 3.0 million.

Gold prices have slipped this week, as market sentiment has improved due to stronger oil prices. This has translated into investors feeling more comfortable with riskier assets, such as exotic currencies. As a traditional safe haven, gold prices generally soften when market confidence is higher. Another factor weighing on gold is the ECB meeting on Thursday. The markets are expecting Mario Draghi to announce new easing measures, such as pushing interest rates into negative territory or expanding the ECB’s bond-purchase program (QE). Either of these measures could send the euro lower against the US dollar, and the greenback’s gain could mean lower gold prices. Traders should be prepared for possible volatility on Thursday, following the ECB’s rate announcement and press conference.

A strong US Nonfarm Payrolls is often bullish for the US dollar, but an excellent January report failed to buoy the greenback against its major rivals late last week. The indicator impressed with a reading of 242 thousand, much higher than the estimate of 195 thousand. This was much stronger than the previous (revised) reading of 171 thousand. The US economy has added an average of 225,000 jobs per month since December, an impressive number considering that the economy has softened in the early part of 2016. Why then, did a stellar NFP release not impress the markets? The reason was that wage growth, which has consistently lagged behind other employment indicators, surprised the markets with a decline of 0.1% in January, the first drop in wages since December 2014. This indicator is closely linked to inflation, since an increase in wages means workers have more money to spend. The indicator’s decline means that that Federal Reserve’s inflation target of about 2.0% remains far off, so the Fed, which is keeping a close eye on the weak inflation picture, is unlikely to press the rate trigger at its policy meeting later this month.

XAU/USD Fundamentals

Wednesday (March 9)

  • 10:00 US Wholesale Inventories. Estimate -0.2%. Actual 0.3%
  • 10:30 US Crude Oil Inventories. Estimate 3.0M. Actual 3.9M
  • 13:01 US 10-year Bond Auction

*Key releases are highlighted in bold

*All release times are EST

XAU/USD for Wednesday, March 9, 2016

Forex Rate Graph 21/1/13

XAU/USD March 9 at 11:50 EST

Open: 1263.09 Low: 1242.95 High: 1264.97 Close: 1254.04

XAU/USD Technical

S3 S2 S1 R1 R2 R3
1191 1205 1232 1255 1279 1303
  • XAU/USD posted losses in the Asian and European sessions. The pair has been choppy in North American trade
  • 1255 is busy and is a weak resistance line.
  • 1232 is providing support
  • Current range: 1232 to 1255

Further levels in both directions:

  • Below: 1232, 1205 and 1191
  • Above: 1255, 1279, 1303 and 1327

OANDA’s Open Positions Ratio

XAU/USD ratio remains almost unchanged this week, as long positions currently have a slight majority (54%). This is indicative of trader bias towards gold reversing direction and heading 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.