Gold Steady, Markets Eye Yellen Testimony

Gold has posted small losses on Monday, following strong gains in the Friday session. Spot gold is trading at $1285.86 per ounce in the North American session. In economic news, it’s a quiet start to the trading week. There are no US releases on the schedule. On Tuesday, Federal Reserve chair Janet Yellen will appear before the Senate Banking Committee in Washington.

With the Fed remaining on the sidelines at its June policy meeting, will we see any rate hikes this year? In the heady days of December when the Fed raised interest rates by a quarter-point, there was talk of up to four hikes in 2016. Fast forward to June, and the Fed hasn’t made a move so far this year. Many analysts are predicting only one hike in 2016, but on Friday, St. Louis Fed President James Bullard said that the economy may need just one hike in the next 2-1/2 years. Bullard did not mince words, bluntly stating that the Fed had done a poor job in its predictions about the US economy, and said the markets have no faith in the Fed’s “dot plot” of projected interest rate policy, as the Fed’s actual pace of rate hikes was much slower than its projections. Bullard added that this “mismatch” between words and action had caused distortions in the global financial markets and eroded credibility in the Federal Reserve.

US inflation and employment numbers were soft on Thursday. Core CPI and CPI, the primary gauges of consumer inflation, both posted small gains of 0.2%, within expectations. The Federal Reserve continues to insist that inflation will head towards its target of 2.0 percent, but given current inflation levels are not much above zero, it’s hard to see this happening, absent a huge surge by the US economy. Meanwhile, Unemployment Claims increased to 277 thousand, above the estimate of 267 thousand. This marked a four-week high, and once again raises questions about the strength of the US labor market. The employment picture appeared to be very bright in early 2016, but the Nonfarm Payrolls report of just 38 thousand in May shocked the markets and could delay a rate hike by the Federal Reserve.

The UK goes to the polls on Thursday, as the country votes in a historic referendum on whether to remain in the EU. The campaign between the “Leave” and “Remain” camps has resumed on Monday, following the killing of a Labor MP last week, which shocked the UK and briefly suspended campaigning. Polls released on Friday showed the Remain camp with the lead, and this has boosted the pound in Monday trading. Prime Minister David Cameron and other senior government ministers have warned that that a vote to leave the EU would cause turmoil in global financial markets, and a recent UK Treasury report says an EU exit will wipe out 800,000 jobs in the UK and cause a recession. With the referendum’s outcome very much in doubt, traders can expect volatility in the currency and commodity markets during the week.

XAU/USD Fundamentals

Monday (June 20)

• There are no US releases on the schedule

Tuesday (June 21)

• 14:00 Federal Reserve Chair Janet Yellen Testifies

*Key releases are highlighted in bold

*All release times are EDT

XAU/USD for Monday, June 20, 2016

XAU/USD June 20 at 12:30 EDT

Open: 1289.23 Low: 1277.99 High: 1291.21 Close: 1285.86

XAU/USD Technical

• XAU/USD has been marked by choppy trading and has posted small losses in the Monday session
• 1279 is providing support
• There is resistance at 1307
• Current range: 1279 to 1307

Further levels in both directions:

• Below: 1279, 1255, 1232 and 1207
• Above: 1307, 1331 and 1361

OANDA’s Open Positions Ratio

XAU/USD ratio is showing long positions with a slight majority (54%). This is 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.