Gold Jumps on North Korea Jitters

Gold has posted strong gains in the Wednesday session. In North American trade, spot gold is trading at $1272.93, up 0.97% on the day. On the release front, there are no major events on the schedule. US employment indicators missed their forecasts. Preliminary Nonfarm Productivity gained 0.7%, short of the forecast of 0.9%, while Preliminary Unit Labor Costs came in at 0.6%, well below the estimate of 1.1%. On Thursday, the US will release PPI, which is expected to remain at 0.1%. The markets are also expecting unemployment claims to remain steady at 240 thousand.

Gold prices have risen in recent weeks, taking advantage of a struggling US dollar. The rally has continued on Wednesday, as geopolitical tensions have boosted the metal. The war of words between North Korea and the US has escalated, and the rising political tensions have sent global stock markets lower. Pyongyang has reacted furiously to new sanctions imposed by Washington, and has threatened to attack Guam, which is a major US military base. President Donald Trump is taking a tough line on North Korea, and has promised that any aggression from North Korea will be met with “fire and fury.” With Trump and North Korean President Kim Jong-un on a possible collision course, risk appetite has decreased, as nervous investors have snapped up gold, a traditional safe-haven asset. If the crisis worsens, we can expect gold prices to move towards the $1300 level.

Investor appetite for the US dollar has softened, as political risk has been growing and there are doubts if the Fed will raise rates before 2018. President Trump’s administration seems rudderless and Trump’s inability to pass healthcare legislation has increased political risk in the US. As well, the Federal Reserve’s monetary policy remains unclear. Earlier this year the Fed strongly hinted that it planned to raise rates three times in 2017, but has only pressed the rate trigger twice. In June, Fed Chair Janet Yellen shrugged off low inflation, saying that it was due to “transient” factors, leaving the impression that the Fed still planned one final hike. However, inflation has not improved and the Fed has changed its tune. Last week, St. Louis Federal Reserve President James Bullard said he opposed further Fed hikes, warning that another hike would actually delay inflation from hitting the Fed’s target of 2%. The markets have become more skeptical about a rate hike in December, as the odds have fallen to 34%, compared to 43% a week ago.

XAU/USD Fundamentals

Wednesday (August 9)

• 8:30 US Preliminary Nonfarm Productivity. Estimate 0.7%. Actual 0.9%
• 8:30 US Preliminary Unit Labor Costs. Estimate 1.1%. Actual 0.6%
• 10:00 US Final Wholesale Inventories. Estimate 0.6%
• 10:30 US Crude Oil Inventories. Estimate -2.6M
• 13:01 US 10-y Bond Auction

Thursday (August 10)

• 8:30 US PPI. Estimate 0.1%
• 8:30 US Unemployment Claims. Estimate 240K

*All release times are EDT

*Key events are in bold

XAU/USD for Wednesday, August 9, 2017

XAU/USD August 9 at 12:10 EST

Open: 1257.23 High: 1260.02 Low: 1255.76 Close: 1259.10

XAU/USD Technical

• XAU/USD edged higher in the Asian and European sessions. The pair has posted considerable losses in North American trade
• 1232 is providing support
• 1260 is under pressure in resistance
• Current range: 1232 to 1260

Further levels in both directions:

• Below: 1232, 1199 and 1170
• Above: 1260, 1285, 1307 and 1337

OANDA’s Open Positions Ratio

XAU/USD ratio is showing slight movement towards short positions. Currently, long positions have a majority (53%), indicative of XAU/USD reversing directions and moving higher.

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