XAU/USD – Gold Dips as Markets Eye Fed’s Rate Debate

Gold prices are lower on Friday, as the metal trades at $1339.52 in the North American session. It’s a quiet end to the trading week, with no US releases on the schedule.

US indicators were positive on Thursday and continue to boost the US dollar. US unemployment claims dropped to 262 thousand, beating the forecast of 269 thousand. This marked a five-week low for the key indicator and points to a labor market that is not only robust, but is approaching full capacity. On the manufacturing front, the Philly Fed Manufacturing  Index gained 2.0 points, rebounding nicely from a decline of -2.9 points in the previous release. This figure beat the estimate of 1.4 points.

The markets were keeping a close eye on the Federal Reserve minutes, which provided details of the July policy meeting. As gold is sensitive to interest rate moves, any hint in the Federal Reserve minutes with regard to a rate hike could have sent gold prices lower. In the end however, the minutes proved to be a non-event, as Fed officials did not provide any outlook on a rate move. The minutes, which provided the details of the July policy meeting, indicated that FOMC members are deeply divided on the timing of a rate hike – some want to raise levels soon, as the US labor market approaches full employment, while others expressed concern about making a move with inflation levels well below the target of 2%. Recent data is pointing in all directions, which explains why the Fed is divided over the timing of a rate hike. After a soft GDP report in late July, nonfarm payrolls was stellar. However, this was followed by weak retail sales and CPI numbers. We’ll likely hear FOMC members continue to express their views ahead of the meeting of central bankers at Jackson Hole next week. The great rate debate needs to be resolved one way or another, as the Fed must set rates at its policy meeting next month. Policymakers will be fine-combing through key economic data, particularly employment and inflation numbers. The news remains bleak on the inflation front, as underscored by July’s consumer inflation reports. CPI posted a weak reading of 0.0%, its worst showing in five months. Core CPI dropped to 0.1%, shy of the estimate of 0.2%. As of now, a September hike is virtually off the table, while the Fed could go either way in December, with the odds of a December hike pegged at 50/50.

XAU/USD Fundamentals

Friday (August 19)

*There are no US releases on the schedule

 

XAU/USD for Friday, August 19, 2016

XAU/USD August 19 at 9:10 EDT

Open: 1350.07 High: 1351.25 Low: 1337.79 Close: 1339.52

XAU/USD Technical

S3 S2 S1 R1 R2 R3
1279 1307 1331 1361 1388 1416
  • XAU/USD was flat in the Asian session. The pair has posted slight losses in the European and North American sessions
  • There is resistance at 1361
  • 1331 is providing support. This line could face pressure in the North American session
  • Current range: 1331 to 1361

Further levels in both directions:

  • Below: 1331, 1307 and 1279
  • Above: 1361, 1388, 1416 and 1447

OANDA’s Open Positions Ratio

XAU/USD ratio is showing movement towards long positions. Currently, long positions command a strong majority (64%), indicative of trader bias towards XAU/USD reversing directions and moving upwards. 

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.