XAU/USD – Gold Rally Continues as Dollar Softens on Fed Concerns

Gold has posted strong gains on Thursday. In North American trade, the spot price for one ounce is $1182.70. On the employment front, ADP Nonfarm Employment Change disappointed with a reading of 153 thousand, well off the forecast of 171 thousand. There was better news from unemployment claims, which dropped to a 7-week low at 235 thousand. The ISM Non-Manufacturing PMI improved to 57.2, its highest level since October 2015. US employment numbers will be in the spotlight on Friday, with three releases – Nonfarm Payrolls, Average Hourly Earnings and the Unemployment Rate.

After a sharp fall which started in mid-November, gold prices have improved since Christmas, gaining 4.2 percent. The US dollar was broadly lower ahead of the Federal Reserve minutes on Wednesday, which translated into gains for gold. The metal has continued to gain ground in the Thursday session as XAU/USD trades at 5-week highs.

The Federal Reserve was on center stage on Wednesday, as the Fed released the minutes of its policy meeting in December. At the meeting, the Fed raised rates by a quarter point for the only time in 2016. The minutes indicated that FOMC members are concerned about higher inflation levels, given the “prospects for more expansionary fiscal policies in the coming years”. This is a clear reference to president-elect Trump’s plans to increase fiscal spending and cut taxes, which would likely result in higher inflation, something the Fed  hasn’t had to deal with for years. Still, policymakers appear unchanged in their view that gradual rate hikes remains an appropriate monetary policy. The Fed members acknowledged that there is “considerable uncertainty” regarding future fiscal and economic programs. Many analysts are predicting another rate hike in June, but this could of course change, depending on how the effect that Trump’s economic platform has on the US economy. The Fed will need at least a few months to digest the economic stance of the incoming administration, and the uncertainty mentioned in the Fed minutes could lead to volatility in the markets in what promises to be an interesting first quarter of 2017.

XAU/USD Fundamentals

Thursday (January 5)

  • 7:30 US Challenger Job Cuts. Actual 42.4%
  • 8:15 US ADP Nonfarm Employment Change. Estimate 171K. Actual 153K
  • 8:30 US Unemployment Claims. Estimate 262K. Actual 235K
  • 9:45 US Final Services PMI. Estimate 53.4. Actual 53.9
  • 10:00 US ISM Non-Manufacturing PMI. Estimate 56.6. Actual 57.2
  • 10:30 US Natural Gas Storage. Estimate -97B. Actual -49B
  • 11:00 US Crude Oil Inventories. Estimate -1.8M. Actual -7.1M

Friday (January 6)

  • 8:30 US Average Hourly Earnings. Estimate 0.3%
  • 8:30 US Nonfarm Employment Change. Estimate 175K
  • 8:30 US Unemployment Change. Estimate 4.7%

*All release times are EST

* Key events are in bold

XAU/USD for Thursday, January 5, 2017

XAU/USD January 5 at 13:00 EST

Open: 1165.78 High: 1185.09 Low: 1165.75 Close: 1182.70

XAU/USD Technical

S3 S2 S1 R1 R2 R3
1130 1146 1174 1199 1232 1260
  • XAU/USD posted gains in the Asian session. The pair lost ground in European trade but has reversed directions and moved higher in North American session
  • 1174 has switched to a support role following gains strong gains by XAU/USD in the Thursday session
  •  1199 is the next line of resistance
  • Current range: 1174 to 1199

Further levels in both directions:

  • Below: 1174, 1146, 1130, and 1111
  • Above: 1199 and 1232 and 1260

OANDA’s Open Positions Ratio

XAU/USD ratio is unchanged in the Thursday session. Currently, long positions command a strong majority (77%), indicative of trader bias towards XAU/USD continuing to climb 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

Market Analyst at OANDA
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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