Gold Under Pressure Ahead of FOMC Statement

Gold price have posted slight losses on Tuesday, continuing the downward slide which began late last week. The base metal is trading at a spot price of $1230.75 an ounce in the North American session. On the release front, US consumer spending and inflation reports posted soft numbers, as Retail Sales and PPI both recorded declines of -0.2%.

All eyes are on the Federal Reserve, which will set interest rates and release a policy statement on Wednesday. Gold is sensitive to monetary policy decisions and the resulting currency moves, and the recent slide in gold prices reflect uncertainty on the part of investors as to what the Federal Reserve has planned. Gold initially dropped after the ECB statement last week, in which the central bank cut interest rates to 0.0% and expanded its bond-purchase program from EUR 60 billion to 80 billion/mth. However, at a follow-up press conference, ECB head Mario Draghi stated in a press conference that the ECB was not planning any further rate cuts, and gold jumped on the news. Given this reaction to the ECB event, traders should be prepared for additional movement following the Fed statement. Despite gold’s current downward movement, the metal has sparkled early in 2016, with gains of about 16 per cent since the start of the year.

What can we expect from Janet Yellen & Co. on Wednesday? Most experts are predicting that the Fed will remain on the sidelines and not raise rates, given current economic conditions. Although the US economy continues to expand, growth has been softer in 2016 compared to the red-hot pace which marked the economy in the second half of 2015. The primary trouble spot in the economy is the inflation picture, as inflation levels remains very low, a result of weak global demand and low oil prices. Fed policymakers are divided on how to respond to persistently low inflation. Some FOMC members favor preempting inflation with a rate hike, while others feel that the economy is currently too fragile for such a move. The Fed will likely maintain its tightening bias and continue to monitor key economic indicators. If the US economy shows strength in the first half of 2016, the markets could be treated to a rate hike in the middle of the year.

XAU/USD Fundamentals

Tuesday (March 15)

• 8:30 US Core Retail Sales. Estimate -0.2%. Actual -0.1%
• 8:30 US PPI. Estimate -0.2%. Actual -0.2%
• 8:30 US Retail Sales. Estimate -0.1%. Actual -0.1%
• 8:30 US Core PPI. Estimate 0.1%. Actual 0.0%
• 8:30 US Empire State Manufacturing Index. Estimate -10.3 points. Actual 0.6 points
• 10:00 US Business Inventories. Estimate 0.0%. Actual 0.1%
• 10:00 US NAHB Housing Market Index. Estimate 59 points. Actual 58 points

Wednesday (March 16)

• 8:30 US Building Permits. Estimate 1.20M
• 8:30 US Core CPI. Estimate 0.2%
• 14:00 FOMC Economic Projections
• 14:00 FOMC Statement
• 14:00 FOMC Federal Funds Rate
• 14:30 FOMC Press Conference

*Key releases are highlighted in bold

*All release times are EST

XAU/USD for Tuesday, March 15, 2016

XAU/USD March 15 at 12:30 EST

Open: 1236.17 Low: 1225.61 High: 1238.18 Close: 1230.75

XAU/USD Technical

• XAU/USD posted losses in the Asian session. The pair was choppy in European trade and this continues in North American trade.
• 1232 has switched to resistance following XAU/USD losses on Tuesday
• 1205 is providing support
• Current range: 1205 to 1232

Further levels in both directions:

• Below: 1205 and 1191 and 1170
• Above: 1232, 1255, 1279 and 1303

OANDA’s Open Positions Ratio

XAU/USD ratio remains unchanged, as long positions retain a majority (55%). This is indicative of trader bias towards gold reversing directions and heading 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