Gold Slips Below $1300 on Yellen Rate Comments

Gold is trading below the key level of $1300 on Wednesday. The metal dropped below this barrier on Tuesday for the first time in about a month, following remarks by Janet Yellen about a possible rate hike. In Wednesday’s European session, the spot price stands at $1297.88 per ounce. Gold has taken a tumble, dropping about 3% so far this week. The Fed chair continues with her testimony on Wednesday, this time before the House Financial Services Committee. Today’s US highlight is PPI, with the markets expecting a small gain of 0.2% for the June release.

The dollar responded positively to Fed chair Yellen’s testimony before a Senate committee on Tuesday. Yellen stated that given current economic conditions, monetary stimulus was still required, but rates could increase sooner than expected if inflation and job numbers improved more quickly than forecast. The markets were quick to give a thumbs-up to the prospect of earlier rate increases, and EUR/USD continues to lose ground. The Fed’s asset purchase program (QE) has flooded the economy with over $2 trillion, keeping interest rates at ultra-low levels, but the Fed has been steadily reducing the program since last December. Currently, the Fed is pumping $45 billion/month into the economy, and the next taper is expected in August, with plans to terminate QE in October.

US retail sales releases, the primary indicators of consumer spending, marked the first key events of the week. Retail Sales slipped to 0.2%, well off the estimate of 0.6%. There was better news from Core Retail Sales, which excludes the most volatile items included in Retail Sales. The indicator improved to 0.4%, a three-month high. This was just shy of the estimate of 0.5%. There was excellent news from the manufacturing sector, as the Empire State Manufacturing Index jumped to 25.6 points, its third straight rise.

XAU/USD for Wednesday, July 16, 2014

XAU/USD July 16 at 11:50 GMT

XAU/USD 1298.18 H: 1299.50 L: 1294.96

XAU/USD Technical

• XAU/USD has shown little change in the Asian and European sessions.
• On the upside, 1300 is under strong pressure. 1315 follows.
• 1275 has reverted to a support role as the pair trades at lower levels. 1252 is next.
• Current range: 1275 to 1300.

Further levels in both directions:

• Below: 1275, 1252, 1231 and 1204.
• Above: 1300, 1315, 1331 and 1354

OANDA’s Open Positions Ratio

XAU/USD ratio is pointing to gains in short positions on Wednesday, reversing the direction seen a day earlier. The ratio has a majority of long positions, indicative of trader bias towards gold reversing directions and moving higher against the US dollar.

XAU/USD Fundamentals

• 12:30 US PPI. Estimate 0.2%.
• 12:30 US Core PPI. Estimate 0.2%.
• 13:00 US TIC Long Term Purchases. Estimate 27.4B.
• 13:15 US Capacity Utilization Rate. Estimate 79.4%.
• 13:15 US Industrial Production. Estimate 0.4%.
• 14:00 US Federal Reserve Chair Janet Yellen Testifies Before House Financial Services Committee.
• 14:00 US NAHB Housing Market Index. Estimate 51 points.
• 14:30 US Crude Oil Inventories. Estimate -2.1M.
• 16:00 US FOMC Member Richard Fisher Speaks.
• 18:00 US Beige Book.

*Key releases are highlighted in bold

*All release times are GMT

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.