Gold Dips to 13-month Lows on Talk of June Hike

Gold continues to lose ground this week. The metal has posted slight losses Wednesday, trading at a spot price of $1220.04 an ounce in the North American session. On the release front, Goods Trade Balance beat the estimate. Crude Oil Inventories surprised the markets with a decline of -4.2 million barrels, compared to the forecast of -1.2 million. On Thursday, the US releases unemployment claims and durable goods orders.

Gold continues to endure a very rough month of May, having shed 5.8% of its value and wiping out the gains recorded in April. Gold posted sharp losses on Tuesday after an excellent US housing report bolstered the greenback at the expense of gold. New Home Sales surged in April, with an excellent reading of 619 thousand. Gold is also under pressure as demand has fallen off sharply in India and China.

US housing reports continue to show strong numbers. New Home Sales surged in April, with an excellent reading of 619 thousand, compared to 511 thousand a month earlier. This figure crushed the estimate of 521 thousand and marked an 8-year high. Last week, Existing Home Sales posted a second straight gain, improving to 5.45 million. This was above the forecast of 5.40 million. The news was not as good from the manufacturing front, as the Richmond Manufacturing Index came in at -1 point, surprising the markets which had expected a strong gain of 9 points. This weak reading follows the Philly Fed Manufacturing Index, which continues to struggle. The indicator posted a decline of 1.8 points, well short of the estimate of a 3.2 point gain. We’ll get another look at key manufacturing data on Thursday, with the release of durable goods reports.

Will the Federal Reserve make a move in June? Last week’s Federal Reserve’s minutes were more hawkish than expected, and this resulted in strong volatility in the currency markets last week. It has also renewed market speculation about a June rate hike. Odds of a rate hike in June have increased to 40% on Wednesday, compared to just 4% one week ago. Still, the Fed will be hard-pressed to raise rates if key indicators don’t show improvement, particularly inflation indicators. On Monday, FOMC members James Bullard and John Williams voiced support for further rate hikes. Bullard said that the Fed planned to resume rate hikes if the US economy strengthened, while Williams reiterated that he expected the Fed to raise rates two or three times in 2016. However, there appears to be a gap between what Fed members are saying and market sentiment, as many analysts are projecting only one rate hike this year. The guessing game as to what the Fed has in mind is likely to continue into June, but it’s safe to say that another rate move will be data-dependent, so stronger US numbers will increase the likelihood of a quarter-point hike at the June policy meeting.

XAU/USD Fundamentals

Wednesday (May 25)

  • 8:30 US Goods Trade Balance. Estimate -60.1B. Actual -57.5B
  • 9:00 US HPI. Estimate 0.4%. Actual 0.7%
  • 9:45 US Flash Services PMI. Estimate 53.1. Actual 51.2
  • 10:30 US Crude Oil Inventories. Estimate -1.7M. Actual -4.2M

Thursday (May 26)

  • 8:30 US Core Durable Goods Orders. Estimate 0.3%
  • 8:30 US Unemployment Claims. Estimate 275K

*Key releases are highlighted in bold

*All release times are EDT

XAU/USD for Wednesday, May 25, 2016

XAU/USD May 25 at 10:40 EDT

Open: 1225.35 Low: 1217.79 High: 1230.22 Close: 1220.04

XAU/USD Technical

S3 S2 S1 R1 R2 R3
1164 1191 1207 1232 1255 1279
  • XAU/USD has posted small, steady losses in the Tuesday session
  • 1207 is providing support
  • There is resistance at 1232
  • Current range: 1207 to 1232

Further levels in both directions:

  • Below: 1207, 1191 and 1164
  • Above: 1232, 1255, 1279 and 1303

OANDA’s Open Positions Ratio

XAU/USD ratio is almost unchanged on Wednesday. Long positions maintain a strong majority (64%), indicative of trader bias towards XAU/USD 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.