Gold Rally Continues as Dovish Fed Disappoints Markets

This week’s gold rally has continued on Thursday. In the North American session, gold is trading at $1228.69 an ounce. On the release front, Building Permits fell to 1.21 million, missing the estimate of 1.26 million. The Philly Fed Manufacturing Index dropped sharply to 32.8, above the forecast of 30.2 points. On the labor front, unemployment claims ticked down to 241 thousand, beating the forecast of 245 thousand. On Friday, the US will publish the UoM Consumer Sentiment report.

There were no raised eyebrows when the Federal Reserve raised rates by a quarter-point on Wednesday, as the markets had priced a rate hike at over 90%. The rate hike, the second in just three months, raised the raised the benchmark lending rate to a 0.75%-1% range. What was not expected, however, was the sharp drop of the dollar against its major rivals. This was largely due to disappointment with the Fed, which sent a more dovish message than the markets wanted to hear. Leading up the rate announcement, there had been speculation that a red-hot US economy would propel the Fed to accelerate its pace of monetary tightening, with possibly four rate hikes this year. Instead, Fed Chair Janet Yellen reiterated that further rate hikes would be “gradual” and left its “dot plot” unchanged, with a projection for three rate hikes in 2017. As well, the US dollar may have lost ground due to traders and investors acting on “buy on rumor, sell on fact”. This large-scale selling of US dollars after the Fed hike has sent the US dollar broadly lower, and gold has taken advantage with impressive gains of 2.5 percent since the Fed announcement.

Dollar Sees Red, But the Bleeding is Slowing

XAU/USD Fundamentals

Thursday (March 16)

• 8:30 US Building Permits. Estimate 1.26M. Actual 1.21M
• 8:30 US Philly Fed Manufacturing Index. Estimate 30.2. Actual 32.8
• 8:30 US Unemployment Claims. Estimate 245K. Actual 241K
• 8:30 US Housing Starts. Estimate 1.26M. Actual 1.29M
• 10:00 US JOLTS Openings. Estimate 5.45M. Actual 5.63M
• 10:30 US Natural Gas Storage. Estimate -60B. Actual -53B

Upcoming Key Events

Friday (March 17)

• 10:00 US Preliminary UoM Consumer Sentiment. Estimate 97.1

*All release times are GMT

*Key events are in bold

XAU/USD for Thursday, March 16, 2017

XAU/USD March 16 at 13:05 EST

Open: 1220.39 High: 1233.81 Low: 1220.01 Close: 1228.69

XAU/USD Technical

• XAU/USD posted gains in the Asian and European sessions. The pair is showing little movement in the North American session
• 1199 is providing resistance
• 1232 was tested earlier in resistance and is a weak line
• Current range: 1199 to 1232

Further levels in both directions:

• Below: 1199, 1174 and 1146
• Above: 1232, 1260, 1285 and 1307

OANDA’s Open Positions Ratio

XAU/USD ratio is showing little movement in the Thursday session. Currently, long positions have a majority (71%), indicative of trader bias towards XAU/USD continuing to climb higher.

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