XAU/USD – Gold Climbs to 2-Week Highs as Dollar Sags After Fed

Gold continues to move higher on Thursday, following strong gains in the Wednesday session.  The metal is trading at a spot price of $1340.07 per ounce in the North American session. On the release front, unemployment claims dropped to 252 thousand, well below the forecast of 261 thousand. However, existing home sales fell to 5.33 million, short of the estimate of 54.5 million.

US numbers were mixed on Thursday. Unemployment Claims sparkled, dropping to just 252 thousand, the lowest weekly level since mid-April. The excellent figure underscored a labor market which continues to approach full capacity. The news was not as positive from the housing sector, as Existing Home Sales slipped in August to 5.33 million, marking a five-month low. Earlier this week, Building Permits and Housing Starts both softened in August and missed their estimates.

The US dollar has sustained broad losses since the Federal Reserve announcement on Wednesday, and this has translated into sharp gains for gold, which has climbed 1.8 percent since Wednesday. As widely expected, the bank maintained the benchmark interest rate at 0.25%, where it has been pegged since last December. In a highly unusual step, however, three of the ten FOMC members dissented with the decision. Esther George, Loretta Mester and Eric Rosengren voted against holding rates steady, preferring to raise rates immediately by a quarter-percentage point. This was the first time since December 2014 that three FOMC voting members have dissented with the Fed rate decision. This significant dissent within the FOMC underscores that Janet Yellen has been unable to “rally the troops” behind her leadership, with one economist calling the Fed decision “one of the most decisive FOMC meetings in recent memory”.

The highly-anticipated Fed statement noted strong growth in employment and consumer spending, but added that business fixed investment remains weak. The Fed’s “dot plot” indicated that policymakers expect a quarter-rate hike before the end of the year. The Fed’s current stance is being called a “hawkish hold” as the Fed has put the markets on notice that a December rate hike is likely. Using typically bland language, the Fed stated that “the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives.” Reading between the lines, the Fed is looking for stronger inflation numbers, and upcoming inflation indicators (as well as consumer spending and employment) will have a significant impact on the odds of a December rate hike. The Fed sounded dovish about future rate moves, scaling back projections for 2017 from three to two hikes.

XAU/USD Fundamentals

Thursday (September 22)

• 8:30 US Unemployment Claims. Estimate 261K. Actual 252K
• 9:00 US HPI. Estimate 0.3%. Actual 0.5%
• 10:00 US Existing Home Sales. Estimate 5.45M. Actual 5.33M
• 10:00 US CB Leading Index. Estimate 0.0%. Actual -0.2%
• 10:30 US Natural Gas Storage. Estimate 59B. Actual 52B

*Key releases are highlighted in bold

*All release times are EDT

XAU/USD for Thursday, September 22, 2016

XAU/USD September 22 at 13:45 EDT

Open: 1333.32 High: 1343.72 Low: 1331.10 Close: 1340.07

XAU/USD Technical

• XAU/USD was flat in the Asian and European sessions. The pair has recorded considerable gains in North American trade
• 1331 is providing support
• 1361 is an immediate resistance line
• 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 has shown strong gains in short positions, consistent with the recent sharp gains by XAU/USD. Currently, long positions have a substantial 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.