Gold Slide Continues Ahead of BoJ, Fed Statments

Gold price have dropped on Monday, continuing the downward movement of the Friday session. The base metal is trading at a spot price of $1242.12 an ounce in the North American session. On the release front, it’s  it’s a quiet start to the week, with no US releases on the schedule. There is plenty of activity on Tuesday with the release of Retail Sales and PPI reports. The markets are expecting these key indicators to show small declines.

Gold is sensitive to monetary policy and currency moves that result from such decisions, and the recent slide in gold prices reflect uncertainty on the part of investors as to what the BOJ and Federal Reserve have in mind. Both central banks will release policy statements this week – the BoJ later on Monday and the Fed on Wednesday. Gold showed strong volatility after the ECB statement last week, so traders should be prepared for additional movement from gold if the US and Japanese central banks surprise the markets, as was with the case with the ECB. At the same time, gold has sparkled in 2016, posting gains of around 16% since the start of the year.

The ECB made dramatic announcements at its policy meeting on Thursday, and gold mimicked the euro’s movement and showed strong volatility. The ECB applied the axe to interest rates, cutting the benchmark rate from 0.05 percent to a flat zero percent, and further lowering deposit rates from -0.3% to -0.4%. The ECB also announced it would expand its bond-purchase program (QE), starting in April, from EUR 60 billion to 80 billion each month. These easing measures initially sent gold prices downwards, but shortly afterwards, ECB head Mario Draghi stated in a press conference that the ECB was not planning any further rate cuts, and gold jumped on the news. Pressure had been building for months on the ECB to take action, as growth and inflation levels remain sluggish.

Monday aside, it’s a busy schedule on release front this week, which could spell significant volatility in the currency markets. The US will release inflation and retail sales reports on Tuesday, followed by the FOMC policy statement on Wednesday. Will the Federal Reserve raise interest rates? Most experts say no, given current economic conditions. The economy continues to expand, although growth has been softer in 2016 compared to the red-hot pace which marked the economy in H2 of 2015. The primary trouble spot in the economy is the inflation picture, as inflation levels remains very low, a result of weak global demand and low oil prices. The cautious Fed will likely wait until mid-2016, and seriously consider a rate hike if the US economy shows that it is gaining steam.

XAU/USD Fundamentals

Monday (March 14)

• There are no US releases on Monday

Tuesday (March 15)

• 8:30 US Core Retail Sales. Estimate -0.2%
• 8:30 US PPI. Estimate -0.2%
• 8:30 US Retail Sales. Estimate -0.1%

*Key releases are highlighted in bold

*All release times are EST

XAU/USD for Monday, March 14, 2016

XAU/USD March 14 at 13:15 EST

Open: 1198.57 Low: 1241.63 High: 1261.50 Close: 1242.12

XAU/USD Technical

• XAU/USD was choppy in the Asian and European sessions and has posted considerable losses in North American trade
• 1232 is providing support
• There is resistance at 1255
• Current range: 1255 to 1279

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 unchanged, as long positions have a majority (56%). This is indicative of trader bias towards gold reversing directions 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.