Gold Rally Continues, US Consumer Confidence Jumps

Gold continues to move higher on Tuesday, trading at $1117.82 an ounce in the North American session. On the release front, CB Consumer Confidence climbed to 98.1 points, beating the estimate. On Wednesday, the Federal Reserve will set interest rates and release a policy statement.

Gold has impressed in January, posting impressive gains of over five percent. The metal has benefited from the turmoil in the markets due to the plunge in oil prices and the Chinese slowdown, which has seen Chinese stock markets slide and Chinese GDP dip lower. Jittery investors have dumped risk assets and snapped up gold, traditionally a safe-haven asset. As well, the Federal Reserve appears unlikely to raise rates at the conclusion of its policy meeting on Wednesday. This is bullish for gold, since higher yields make the US dollar more attractive to investors.

The Federal Reserve will under the spotlight on Wednesday, as the Fed issues a policy statement and sets interest rates. It’s unlikely that the Fed will raise rates, which currently stand at 0.25%. Economic conditions have changed significantly since the US central bank raised rates in mid-December, with global stock markets and oil prices sharply lower since the historic rate hike. According to Morgan Stanley Morgan chief economist Ellen Zentner, financial conditions have tightened by the equivalent of four rate hikes, so the Fed may opt to hold off from further tightening for the near future. We can expect the Fed to perform a balancing act in the upcoming statement, acknowledging weaker economic conditions while emphasizing that the economy continues to grow. The collapse of oil prices has contributed to the weak inflation picture, with current inflation levels well below the Fed target of 2.0%. Traders should be prepared for possible volatility following the upcoming policy statement.

XAU/USD Fundamentals

Tuesday (Jan. 26)

• 9:00 US HPI. Estimate 0.4%. Actual 0.5%
• 9:00 S&P/CS Composite-20 HPI. Estimate 5.7%. Actual 5.8%
• 9:45 US Flash Services PMI. Estimate 53.9 points. Actual 53.7 points
• 10:00 US CB Consumer Confidence. Estimate 96.6 points. Actual 98.1 points
• 10:00 US Richmond Manufacturing Index. Estimate 3 points. Actual 3 points

Wednesday (Jan. 27)

• 14:00 FOMC Statement
• 14:00 Federal Funds Rate. Estimate <0.50%

*All release times are EST

*Key events are in bold

XAU/USD for Tuesday, January 26, 2016

XAU/USD January 26 at 11:50 GMT

Open: 1108.74 Low: 1107.47 High: 1119.19 Close: 1117.72

XAU/USD Technical

• XAU/USD has posted gains in the Asian session. The pair posted slight losses in European trade, but has recovered and posted gains in North American trade.
• There is resistance at 1134
• 1098 is providing support
• Current range: 1098 to 1134

Further levels in both directions:

• Below: 1098, 1080, 1043 and 1024
• Above: 1134, 1151 and 1175

OANDA’s Open Positions Ratio

XAU/USD ratio is showing little change on Tuesday, as long positions continue to command a solid majority (67%). This is indicative of strong trader bias towards gold prices continuing to move to higher levels.

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.