Gold Inches Higher, Markets Eye Fed Minutes

Gold has posted small gains on Tuesday, following gains which marked the Monday session. Gold is trading at a spot price of $1355 per ounce in the North American session. On the release front, there are no major US events on the schedule. Factory Orders declined 1.0%, the first drop in three months. As well, IBD/TIPP Economic Optimism dropped to 45.5 points, short of the forecast of 49.3 points. This reading points to ongoing pessimism among US consumers. On Wednesday, the Federal Reserve will release the minutes of its June policy meeting.

Gold continues to impress, and touched a high of $1357 on Monday, close to its highest level in two years. Gold has been one of the big winners of the Brexit referendum, 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 immediately after the Brexit vote. In June, the metal surged some 8.8 percent, and continuing uncertainty in the markets could mean that gold prices will continue to move upwards.

The Brexit vote to leave the European Union is having global ramifications and has wiped out a staggering $3 trillion from stock markets. Jittery investors are flocking to safe-haven assets like gold and the Japanese yen, at the expense of riskier assets. The British pound, which has shed about 11 percent since the vote, posted sharp losses on Tuesday and is trading at 31-year lows. British politicians have sought to calm the public and the markets, but the pound’s free-fall underscores that the situation is anything but normal. The country’s political picture is in flux, as the Conservatives are choosing a new leader to replace Prime Minister Cameron and elections may follow later in the year. On the financial front, the pound has taken a beating and London’s position as a world financial center could be in jeopardy. Last week, the normally even-keel BoE Governor Mark Carney was surprisingly blunt, stating that the BoE planned to lower interest rates during the summer, and this will only add pressure on the battered UK financial sector.

Britain may have voted “Out”, but there is no timetable as to when the exit will take place or what type of trade agreement will define the new economic relationship between the EU and Britain. British leaders are in no rush to leave, but European leaders have called on Britain to exit as soon as possible in order to minimize the uncertainty and instability caused by the Brexit vote. When it comes to the EU, Britain finds itself in limbo (“neither in nor out”), and the political and economic instability unleashed by Brexit could continue to weigh on the currency and commodity markets for the foreseeable future.

Market focus on whether the Federal Reserve would raise rates has understandably shifted to the back-burner since the Brexit vote in late June. The historic referendum has had economic repercussions across the globe, including the US. What will be the effect of Brexit on US monetary policy? It may be too early too tell, but some analysts are projecting that the Fed might change its monetary stance and actually lower rates this year. The markets will be keenly interested in the Fed minutes, which will be released on Wednesday, although they will have preceded the Brexit vote. Fed Chair Janet Yellen and her colleagues have sounded cautious about the US economy, and the financial instability caused by Brexit could delay any rate hikes until 2017. The US economy is in good shape, but the Fed hasn’t raised rates since last December and is unlikely to seriously consider any rate hikes unless employment and inflation numbers point upwards.

XAU/USD Fundamentals

Tuesday (July 5)

  • 10:00 US Factory Orders. Estimate -0.8%. Actual -1.0%
  • 10:00 US IBD/TIPP Economic Optimism. Estimate 49.3. Actual 45.5 
  • 14:30 US FOMC Member William Dudley Speaks

Upcoming Key Events

Wednesday (July 6)

  • 10:00 US ISM Non-Manufacturing PMI. Estimate 53.3
  • 14:00 US FOMC Meeting Minutes

*Key releases are highlighted in bold

*All release times are EDT

XAU/USD for Tuesday, July 5, 2016

XAU/USD July 5 at 12:10 EDT

Open: 1344.49 Low: 1333.97 High: 1355.47 Close: 1354.92

XAU/USD Technical

S3 S2 S1 R1 R2 R3
1279 1307 1331 1361 1388 1416
  • XAU/USD posted gains slight losses in the Asian session. The pair posted small gains in the European session and continues to move upwards in the North American session
  • 1331 is providing support
  • There is resistance at 1361
  • Current range: 1331 to 1361

Further levels in both directions:

  • Below: 1331, 1307, 1279 and 1255
  • Above: 1361, 1388 and 1416

OANDA’s Open Positions Ratio

XAU/USD ratio is showing gains in short positions, consistent with XAU/USD gaining ground and covering long positions. Currently, long positions have a majority (56%), 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.