Fed’s Muddled Message is Gold’s Gain

Gold is unchanged on Monday, as the metal trades at $1177 at the start of the North American session. In the US, two Fed FOMC members will deliver remarks at public events. The only economic release is the NAHB Housing Market Index, which is expected to remain steady at 62 points. Traders should keep an eye on US Building Permits, a market-mover which will be released on Tuesday.

October has been good to the precious metal, which has jumped over 5% since the start of the month. Gold prices briefly pushed above $1190 last week, its highest level since June. Why the sudden surge? The markets were looking for an interest rate hike in September, but the Fed didn’t act and FOMC members continue to muddy the waters with contradictory statements about a rate hike. The resultant market disappointment and confusion has hurt the dollar but boosted bullion. Even if the Fed does raise rates, many analysts expect gold prices to remain stable, as the rate increases will likely be applied in small increments.

US key numbers on Friday were mixed. UoM Consumer Sentiment, the primary gauge of consumer confidence, jumped to 92.1 points in October, up from 85.7 points. This easily beat the estimate of 88.8 points. At the same time, JOLTS Job Openings slipped to 5.37 million, way off the estimate of 5.77 million. The JOLTS release is especially important as it is watched closely by the Fed and is a factor in its decision-making process regarding monetary policy.

Meanwhile, US manufacturing numbers in October were dismal. The Empire State Manufacturing Index posted its third straight decline, coming in at -11.4 points, missing the forecast of -7.3 points. The Philly Fed Manufacturing Index, a key release, came in at -4.5 points, shy of the estimate of -1.8 points. These figures point to contraction in the US manufacturing sector, which continues to suffer from weak global demand.

US Federal Reserve policymakers seem divided on the question of a rate hike in 2015. This was underscored last week by FOMC member Lael Brainard, who stated that the Fed should not raise rates before global economic conditions improve. Brainard noted that the Chinese slowdown has caused economic turmoil worldwide, and the US economy could lose steam due to weaker exports and weak global economic conditions. On the other end of the spectrum, another member of the FOMC, Dennis Lockhart, sounded more optimistic about a rate hike before the end of 2015. Lockhart did not rule out a rate hike in October, and added that the Fed would have more data to evaluate before its December policy meeting. With FOMC members sending out such conflicting messages, exasperated markets have been unable to get a handle on the timing of a rate hike, and this failure of the Fed to communicate a clear message continues to lead to uncertainty in the markets.

XAU/USD Fundamentals

Monday (Oct. 19)

  • 14:00 Fed FOMC Member Lael Brainard Speaks.
  • 14:00 NAHB Housing Market Index. Estimate 62 points.
  • 16:00 Fed FOMC Member Jeffrey Lacker Speaks.

Upcoming Releases

Tuesday (Oct. 20)

  • 12:30 US Building Permits. Estimate 1.16M

*Key releases are highlighted in bold

*All release times are GMT

XAU/USD for Monday, October 19, 2015

Forex Rate Graph 21/1/13

USD/CAD October 19 at 13:00 GMT

USD/CAD 1177 H: 1178 L: 1170

USD/CAD Technical

S3 S2 S1 R1 R2 R3
1134 1151 1162 1180 1192 1204
  • USD/CAD was uneventful in the Asian session and moved slightly higher in European trading.
  • 1162 is providing support.
  • 1180 is a weak resistance line and could be tested during the North American session.
  • Current range: 1162 to 1180

Further levels in both directions:

  • Below: 1162, 1151 and 1134
  • Above: 1180, 1192 and 1204

OANDA’s Open Positions Ratio

XAU/USD ratio is close to an even split between long and short positions, indicative of a lack of trader bias regarding which direction gold will take next.

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.

Kenny Fisher

Kenny Fisher

Market Analyst at OANDA
A highly experienced financial market analyst with a focus on fundamental analysis, Kenneth Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in several major online financial publications including Investing.com, Seeking Alpha and FXStreet. Based in Israel, Kenny has been a MarketPulse contributor since 2012.