XAU/USD – Gold Gains Ground on Dismal Housing Report

Gold prices has posted gains on Wednesday, erasing the losses seen in the Tuesday session. Gold is trading at a spot price of $1324 per ounce in the North American session. On the release front, Pending Home Sales plunged 3.7%, much worse than expected. US Personal Spending posted a gain of 0.4%, matching the forecast. On Thursday, the US releases Unemployment Claims.

Gold has moved higher, buoyed by a poor release from Pending Home Sales. The key indicator dropped 3.7%, compared to the estimate of -0.9%. It marked the sharpest drop since December 2014, raising concerns about the strength of the important housing sector. US economic growth this year has slipped compared to 2015, but there was some good news, as Final GDP for the first quarter was revised upwards. The indicator posted a gain of 1.1%, above the estimate of 1.0%. This reading was stronger than the Preliminary GDP reading of 0.8%. On the consumer front, CB Consumer Confidence impressed by climbing to 98.0 points, easily beating the forecast of 93.2 points. Is US consumer confidence strengthening? It’s not clear, as last week’s UoM Consumer Sentiment report dropped to 93.4 points and missed expectations. On Wednesday, US personal spending was lukewarm, gaining 0.4%, compared to 1.0% a month earlier.

One of the big winners of the Brexit referendum has been gold, as financial markets dropped sharply after the stunning news that Britain had voted to exit the European Union.  Gold took full advantage of the chaos, surging a remarkable 7.1 percent on Friday. The metal has given up a bit of ground this week, as market sentiment has improved as the dust begins to settle from the shock of Brexit. Gold has enjoyed a stellar month of June, gaining some 8.8% in value and trading comfortably above the $1300 level.

With the aftershocks of the Brexit vote continuing to reverberate in the Britain and Europe, political leaders must now pick up the pieces and deal with the radical new landscape, which was unthinkable just a few months ago – that of a European Union without Britain. The historic decision raises many questions and has resulted in political and financial instability in Europe and the UK, and wiped out a staggering $3 trillion from global stock markets. The British pound has tumbled about 10 percent since the vote, Chancellor of the Exchequer George Osborne and Bank of England Governor Mark Charney have sought to reassure the markets and the public that the situation is under control, but is it? The political picture is fluid in Britain, with Prime Minister Cameron resigning, the Labor Party in turmoil, and general elections likely later in the year. On the financial front, the pound and the markets have taken a beating, and London’s position as a world financial center has been shaken. The uncertainty is not going to disappear anytime soon, so traders should be prepared for further volatility in the currency and commodity markets.

British Prime Minister Cameron, a staunch supporter of the EU, finds himself in the unenviable position of explaining the Brexit decision to fuming Europeans. Cameron arrived in Brussels for an EU Summit on Tuesday and the meeting was fraught with tension, dismay and anger. Clearly, the “divorce of the “century” between Britain and the EU could be rancorous and messy. Cameron has asked for time to prepare Britain’s exit and wants to renew “productive” relations with Europe. However, the Europeans are in no mood for hugs and kisses on both cheeks. German Chancellor Merkel said that the UK could not “cherry pick” and that a relationship with Europe entailed obligations and not just rights – in other words, the Europeans are rejecting “half membership”. As well, Europe wants Britain to exit as soon as possible, in order to minimize the uncertainty and instability caused by the Brexit vote. French President Hollande wasted no time going on the attack, saying that London should no longer remain a center for clearing euro trades. This market is worth trillions of euros in currency and derivative deals and such a move would be a severe blow to London’s financial sector. Already, the European Banking Authority has announced it is leaving London and moving to Paris or Frankfurt.

XAU/USD Fundamentals

Wednesday (June 29)

  • 8:30 US Core PCE Price Index. Estimate 0.2%. Actual 0.2%
  • 8:30 US Personal Spending. Estimate 0.4%. Actual 0.4%
  • 8:30 US Personal Income. Estimate 0.3%. Actual 0.2%
  • 10:00 US Pending Home Sales. Estimate -0.9%. Actual -3.7%
  • 10:30 US Crude Oil Inventories. Estimate -2.3M. Actual -4.1M
  • 16:30 US Bank Stress Test Results

Upcoming Key Events

Thursday (June 30)

  • 12:30 US Unemployment Claims. Estimate 267K

*Key releases are highlighted in bold

*All release times are EDT

XAU/USD for Wednesday, June 29, 2016

XAU/USD June 29 at 12:30 EDT

Open: 1314.02 Low: 1313.38 High: 1327.89 Close: 1324.26

XAU/USD Technical

S3 S2 S1 R1 R2 R3
1255 1279 1307 1331 1361 1388
  • XAU/USD posted small gains in the Asian session and flattened out in the European session. The pair has posted small gains in North American trade
  • 1307 has some breathing room in support following gains by XAU/USD on Wednesday
  • There is resistance at 1331
  • Current range: 1307 to 1331

Further levels in both directions:

  • Below: 1307, 1279, 1255 and 1232
  • Above: 1331, 1361 and 1388

OANDA’s Open Positions Ratio

XAU/USD ratio is unchanged on Wednesday, consistent with the lack of significant movement from XAU/USD. Long positions have a majority (64%), indicative of trader bias towards XAU/USD 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.

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.