XAU/USD – Gold Prices Climb After BoJ, Fed Hold Rates

Gold prices have posted considerable gains on Wednesday. The metal is trading at a spot price of $1328.43 per ounce in the North American session. On the release front, the spotlight is on the central banks, as the BoJ and Federal Reserve made no changes to interest rates and released monetary policy statements. The BoJ also maintained its currency monetary base levels, but said it would abandon its monetary base target. Over in the US, the Federal Reserve maintained interest rates at 0.25% and hinted at a rate hike in December.

As widely expected, the Federal Reserve left the benchmark interest rate at 0.25%, unchanged since last December. In a highly unusual step, however, three FOMC members dissented with the decision and voted in favor of a rate hike of a quarter-point. The Fed statement noted strong growth in employment and consumer spending, but added that business fixed investment remains weak. The Fed’s “dot plot” indicated that policymakers expect a quarter-rate hike before the end of the year. At the same time, the Fed has scaled back projections of rate hikes in 2017 and beyond. The markets are currently digesting the policy statement and will also be closely monitoring Janet Yellen’s follow-up press conference. Gold prices have posted strong gains in the Wednesday session, climbing 1.3 percent.

There has been plenty of speculation as to what moves, if any, the BoJ would take at its September meeting. Late Tuesday, the bank avoided any dramatic moves but did make some minor changes to monetary policy. The yen reacted with sharp losses before recovering. The bank surprised by maintaining interest rates at -0.10%, as the markets expected a cut to -0.20%. The BoJ held monetary base at JPY 80 billion/year, but said it would abandon its monetary base target until inflation reached the 2% target. The bank appears intent on putting greater emphasis on combating deflation, which remains a serious danger to the struggling economy. The general market reaction is that the BoJ has merely tweaked its monetary stance rather than adopted any substantive new policies.

XAU/USD Fundamentals

Wednesday (September 21)

• 10:30 Crude Oil Inventories. Estimate +3.5M. Actual -6.2M
• 14:00 FOMC Economic Projections
• 14:00 FOMC Federal Funds Rate. Estimate <0.50%. Actual <0.50%
• 14:30 FOMC Press Conference

*Key releases are highlighted in bold

*All release times are EDT

XAU/USD for Wednesday, September 21, 2016

XAU/USD September 21 at 14:20 EDT

Open: 1315.90 High: 1329.82 Low: 1307.51 Close: 1327.64

XAU/USD Technical

• XAU/USD posted small gains in the Asian session. The pair recorded considerable gains in the European session and continues to climb in North American trade
• 1307 has some breathing room in support as XAU/USD has climbed higher in the Wednesday session
• There is weak resistance at 1331. There is a strong likelihood that this line will break in the North American session
• Current range: 1307 to 1331

Further levels in both directions:

• Below: 1307, 1279 and 1245
• Above: 1331, 1361, 1388 and 1416

OANDA’s Open Positions Ratio

XAU/USD ratio is unchanged in the Wednesday session. Currently, long positions have a substantial majority (75%), indicative of trader bias towards XAU/USD continuing to move 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.