Gold Shrugs off Bland Federal Reserve Minutes, Soft Job Numbers

Gold has posted small losses in Thursday trading. In the North American session, spot gold is trading at $1224.01 per ounce. On the release front, US employment numbers were softer than expected. ADP Nonfarm Payrolls dropped to 154 thousand, well below the estimate of 184 thousand. Unemployment claims rose to 248 thousand, above the estimate of 243 thousand. On Friday, there are three key employment events – Average Hourly Earnings, Non-Farm Employment Change and the unemployment rate. As well, the Federal Reserve will release its semi-annual Monetary Policy Report. If there are some surprises from these key employment events, we could see some volatility from gold.

Gold prices started the week with sharp losses, falling to 7-week lows on Monday. Since then, the metal has been subdued. The Federal Reserve minutes were on the dull side, as policymakers appear to have retreated from their upbeat view of the US economy in the June rate statement. The minutes revealed divisions in the Fed over inflation and the bloated balance sheet, but failed to provide any clarity about future monetary policy. Some FOMC members expressed unease at the Fed’s current forecast of rate hikes, given the persistently low levels of inflation. According to the current “dot plot”, the Fed expects to raise rates in December, and three times in 2018. There was also dissension over the timing of reducing the $4.2 trillion balance sheet – some policymakers were in favor of starting in September, while others preferred later in the year. At the June meeting, the Fed stated that it would begin reducing the balance sheet this year, but provided no details. Analysts expect the Fed to start winding down the balance sheet in September, prior to a rate hike in December.

The Fed has consistently said that it plans to raise interest rates for a third and final time in December. Last month, Fed Chair Janet Yellen shrugged off inflation worries, saying that she expected inflation was mired at lows levels due to temporary factors. However, the markets don’t seem to be buying in, as the odds of a December hike are only 50%, according to the CME Group. The US economy slowed down in the first quarter, and there are signs that Q2 will also be soft. Consumer spending, which comprises two-thirds of US economic growth, remains soft. Another sore point in the economy is inflation, which remains below the Fed’s target of 2%. If the economy doesn’t show signs of stronger growth and higher inflation, the Fed might change its tune about a December rate, which would likely send the US dollar lower.

XAU/USD Fundamentals

Wednesday (July 5)

• 10:00 US Factory Orders. Estimate -0.5%. Actual -0.8%
• 14:00 FOMC Meeting Minutes

Thursday (July 6)

• 8:15 US ADP Non-Farm Employment Change. Estimate 184K
• 8:30 US Unemployment Claims. Estimate 243K
• 10:00 US ISM Non-Manufacturing PMI. Estimate 56.5

*All release times are EDT

*Key events are in bold

XAU/USD for Thursday, July 6, 2017

XAU/USD July 6 at 11:20 EST

Open: 1226.92 High: 1228.30 Low: 1222.75 Close: 1224.01

XAU/USD Technical

• XAU/USD edged higher in the Asian session. The pair retracted in the European session and has edged higher in North American trade
• 1199 is providing support
• 1232 is the next resistance line
• Current range: 1199 to 1232

Further levels in both directions:

• Below: 1199, 1170 and 1146
• Above: 1232, 1260, 1285 and 1307

OANDA’s Open Positions Ratio

XAU/USD ratio is showing slight gains in long positions. Currently, long positions have a majority (73%), indicative of XAU/USD breaking out and climbing to higher levels. 

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