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XAU/USD – Gold Slightly Higher Ahead of Federal Reserve Announcement

Gold continues to have an uneventful week. Will this change after the Federal Reserve’s rate statement later on Wednesday? In North American trade, the spot price for an ounce of gold is $1163.12. On the release front, core retail sales and retail sales posted weak gains of 0.2% and 0.1% respectively, which fell short of estimates. There was better news on the inflation front, as PPI surprised with a gain of 0.4%, marking a five-month high. Thursday will also be busy, as the US releases CPI, the Philly Fed Manufacturing Index and unemployment claims.

Gold has recorded weekly losses for five straight weeks and the metal is currently trading at its lowest level since early February. The downward trend could continue, with the Fed likely to raise interest rates by a quarter percentage point. Gold prices move inversely with interest rate movement, as higher rates make the US dollar more attractive to investors versus gold, which pays no interest.

It’s crunch time, as the markets anxiously await the Federal Reserve’s rate statement later on Wednesday. The markets have priced in a rate hike at 95 percent, most likely a quarter-point increase. This would mark the first hike by the Fed since last December, and anticipation of a hike has translated into strong gains for the greenback. Even though the rate move has been expected (and priced in) for some time, the markets will be monitoring the statement closely – gold could react based on whether the markets view the Fed’s move as a dovish hike or hawkish hike. What can we expect from the Fed after the hike? The Fed has indicated that it plans to raise rates gradually in 2017. However, this monetary outlook could change, given Trump’s declarations that he will increase government spending and cut taxes, which could lead to higher inflation levels. Once the new administration’s economic policies become clearer, the Fed may send signals to the markets as to its rate plans in early 2017.

XAU/USD Fundamentals

Wednesday (December 14)

Upcoming Key Events

Thursday (December 15)

*All release times are EST

*Key events are in bold

XAU/USD for Wednesday, December 14, 2016

XAU/USD December 14 at 11:45 EST

Open: 1158.55 High: 1165.29 Low: 1157.83 Close: 1163.12

XAU/USD Technical

S3 S2 S1 R1 R2 R3
1111 1130 1146 1174 1205 1223

Further levels in both directions:

OANDA’s Open Positions Ratio

XAU/USD ratio is unchanged in the Thursday session. Currently, long positions command a substantial majority (76%). This is indicative of trader bias towards XAU/USD 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.

Kenny Fisher

Kenny Fisher [4]

Market Analyst at OANDA [5]
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.
Kenny Fisher

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