XAU/USD – Gold Jumps as Odds for September Rate Hike Drop

Gold has posted strong gains on Tuesday, as the metal trades at a spot price of $1346.61 per ounce in the North American session. On the release front, the US ISM Non-Manufacturing PMI dropped to 51.4 points, well off the forecast of 55.4 points. Minor indicators released on Tuesday also disappointed. IBD/TIPP Economic Optimism slipped to 46.7 points, below expectations, while the Labor Market Conditions Index declined 0.7 points. 

As recent US numbers continue to disappoint, gold has recorded strong gains, gaining 2.9% since September 1. The first key event of the week was a major disappointment, as ISM Non-Manufacturing PMI slid to 51.4 points in August, sharply lower than the 55.5 reading in July. This marked the weakest expansion pace in the services sector since 2008. The weak reading comes on the heels of the ISM Manufacturing PMI in August, which came in at 49.4 points, its first contraction in six months.  These soft releases come on the heels of weak job numbers in August and have lowered market sentiment regarding a September rate hike.

The US labor market has been strong for most of 2016, but that trend hit a nasty road bump on Friday, as US job data for August was dismal. Nonfarm Payrolls plunged to 151 thousand in August, down from 255 thousand a month earlier. This was well short of the forecast of 180 thousand. Wage growth also disappointed, as Average Hourly Earnings edged lower to o.1%, shy of the forecast of 0.2%. Clearly this was not positive news, but August releases are often weaker than expected. Still, even if the August payrolls release is overlooked, many FOMC members remain uneasy about a rate hike, especially given the persistent lack of inflation in the economy. Key inflation indicators will be released in mid-September, just before the Fed policy meeting on September 21. These releases could play a critical role in determining if the Fed presses the rate trigger this month, or decides to revisit the rate question in December, which would be exactly a year from the last rate hike.

XAU/USD Fundamentals

Tuesday (September 6)

• 10:00 US ISM Non-Manufacturing PMI. Estimate 55.4. Actual 51.2
• 10:00 US IBD/TIPP Economic Optimism. Estimate 48.6. Actual 46.7
• 10:00 US Labor Market Conditions Index. Actual -0.7

*Key releases are highlighted in bold

*All release times are EDT

XAU/USD for Tuesday, September 6, 2016

XAU/USD September 6 at 13:15 EDT

Open: 1322.74 High: 1347.09 Low: 1321.80 Close: 1346.61

XAU/USD Technical

• XAU/USD was flat in the Asian session. The pair posted gains in the European session and continues to move higher in North American trade
• 1331 has switched to support following strong gains by XAU/USD
• There is resistance at 1361
• Current range: 1331 to 1361

Further levels in both directions:

• Below: 1331, 1307, 1279 and 1245
• Above: 1361, 1388 and 1416

OANDA’s Open Positions Ratio

XAU/USD ratio is unchanged on Tuesday. Currently, long positions have a strong majority (67%), indicative of trader bias towards XAU/USD continuing to move upwards. 

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.