Gold Drops to New July Lows as US Numbers Improve, BoE Stands Pat

Gold has reversed directions on Thursday and resumed downward movement. In the North American session, the metal is trading at $1329.30. In the US, Unemployment Claims remained at 254 thousand, beating expectations. There was more good news on the inflation front, as the Producer Price Index rose 0.5 percent, beating the estimate. Over in the UK, the Bank of England surprised the markets and maintained interest rates at 0.50 percent. Friday is data-heavy, as the US releases consumer inflation, retail sales and consumer confidence reports.

US numbers looked sharp on Thursday. Inflation showed some strength, as PPI climbed 0.5 percent, ahead of the estimate of 0.3 percent. This marked the highest monthly gain since May 2015. Core PPI followed suit with a gain of 0.4 percent, beating the forecast of 0.1 percent. On the employment front, Unemployment Claims remained at 254 thousand, below the estimate of 263 thousand. Is US inflation on the move? We’ll get a look at CPI numbers on Friday, and a solid release could boost the US dollar.

The drama continues in Britain on the financial and political stages. The markets had widely expected a quarter point cut from the BoE, which would have marked the first rate cut since July 2009. BoE Mark Carney had  strongly hinted at the move when he recently stated that economic conditions had deteriorated and the BoE would need to lower rates in the summer, but Carney has evidently decided to wait. Gold prices are closely linked to interest rates, and the metal lost ground when the expected rate cut failed to materialize. The financial markets are counting on the BoE to cushion the expected economic slowdown in Britain due to Brexit, and there is even talk of a recession. However, there is no hard economic data about the effects of Brexit on the economy and none will be available before September. Testifying before a parliamentary committee on Tuesday, BoE Governor Carney acknowledged that Brexit could lead to downturn in the economy, and that the steps the central bank was taking in response would not provide a “magic bullet” against Brexit.

On the political front in Britain, developments are unfolding quickly. On Wednesday, Theresa May replaced David Cameron as Prime Minister. May was a strong supporter of the Remain camp, but she will now be mandated with presiding over Britain’s exit from the European Union. May has stated that the government fully intends to honor the referendum vote, stating emphatically this week that “Brexit means Brexit”. However, Britain’s exit could be a protracted and messy affair, especially as May has named Boris Johnson, leader of the “Leave” camp, as foreign minister. The British electorate may have voted to depart the EU, but the vote may prove to be the easy part of the process. An EU member has never invoked the exit clause before, and there is no timetable as to when the exit will occur or what kind of trade agreement will define the new economic relationship between the EU and Britain. The Brexit vote to leave the EU in late June has caused political and financial turmoil in Britain and boosted gold as nervous investors have snapped up the safe-haven commodity. Still, there is some optimism in the air as the political landscape has stabilized much more quickly than expected, as the Conservatives were not expected to pick a successor to Cameron before October.

XAU/USD Fundamentals

Thursday (July 14)

• 8:30 US PPI. Estimate 0.3%. Actual 0.5%
• 8:30 US Unemployment Claims. Estimate 263K. Actual 254K
• 8:30 US Core PPI. Estimate 0.1%. Actual 0.4%
• 10:30 US Natural Gas Storage. Estimate 61B. Actual 64B

Upcoming Key Events

Friday (July 15)

• 8:30 US CPI. Estimate 0.2%
• 8:30 US Core CPI. Estimate 0.2%
• 8:30 US Retail Sales. Estimate 0.4%
• 8:30 US Core Retail Sales. Estimate 0.1%
• 10:00 US Preliminary UoM Consumer Sentiment. Estimate 93.7 

*Key releases are highlighted in bold

*All release times are EDT

XAU/USD for Thursday, July 14, 2016

XAU/USD July 14 at 12:00 EDT

Open: 1345.63 High: 1347.20 Low: 1320.23 Close: 1329.30

XAU/USD Technical

• XAU/USD posted losses in the Asian and European sessions. The pair has reversed directions and moved higher in North American trade
• 1307 is providing support
• 1331 has switched to a resistance line and is fluid. It could see further action in the North American session
• Current range: 1307 to 1331

Further levels in both directions:

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

OANDA’s Open Positions Ratio

XAU/USD ratio is showing slight movement towards long positions on Thursday. Currently, long positions command a majority (62%), indicative of trader bias towards XAU/USD reversing directions and moving higher. 

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.