Gold Dips as Minutes Could Confirm June Rate Hike

Gold has posted losses in the Tuesday session, erasing the gains from Monday. In the North American session, spot gold is trading at $1256.05 per ounce. On the release front, US numbers were a disappointment, as New Home Sales dropped to 569 thousand, well short of the forecast of 611 thousand. As well, the Richmond Manufacturing Index dropped to just 1 point, compared to a forecast of 15 points. On Wednesday, the Federal Reserve will release the minutes of its policy meeting earlier this month.

Will the Federal Reserve raise rates in June? The markets are having a difficult time pricing this event, as the odds of a rate hike have been showing an unusual amount of movement. In late April, a rate hike was priced in at just 50%. The odds have jumped higher in May, and currently the markets have priced in a hike at 78%.  Leaving a June hike aside, a key question is how many more hikes does the Fed have in mind for 2017? On Monday, FOMC member Robert Kaplan stated that three interest increases in 2017 was “appropriate”. Earlier in the year, there was speculation that the Fed might raise rates four times in 2017, but with inflation still below the Fed target of 2.0%, three moves appears to be a better bet. The Fed minutes are expected to underscore support for a June move, but may not shed much light on what happens after that. If the odds of a June hike continue to move higher, traders can expect gold prices to respond with more losses.

With President Trump on an overseas trip and taking a breather from Washington, the White House presented Trump’s 2018 budget to lawmakers in Congress on Tuesday. Trump is eager to pick up the axe and slash government spending, and the budget proposes major cuts to the Medicaid and the food stamp programs. Trump has outlined an ambitious program to cut government spending by $3.6 trillion in the next 10 years and achieving a balanced budget by 2020. The budget includes $25 billion for paid leave after childbirth and some $200 billion for infrastructure programs. Trump’s budget will face a tough sale on Capitol Hill, with both Democrats and Republicans likely to demand changes. Still, with the cloud of scandal around Trump lingering in the air, the White House can point to the budget as a step forward in his agenda to slash government spending.

XAU/USD Fundamentals

Tuesday (May 23)

• 9:00 US FOMC Member Neel Kashkari Speaks
• 9:45 US Flash Manufacturing PMI. Estimate 53.2. Actual 52.5
• 9:45 US Flash Services PMI. Estimate 53.3. Actual 54.0
• 9:59 US Richmond Manufacturing Index. Estimate 15. Actual 1
• 10:00 US New Home Sales. Estimate 611K. Actual 569K
• 10:00 FOMC Member Neel Kashkari Speaks
• 17:00 FOMC Member Patrick Harker Speaks

*All release times are EDT

*Key events are in bold

XAU/USD for Tuesday, May 23, 2017

XAU/USD May 23 at 14:05 EST

Open: 1263.28 High: 1263.86 Low: 1252.64 Close: 1255.04

XAU/USD Technical

• XAU/USD showed little movement in the Asian session and European sessions. The pair has dipped in North American trade
• 1232 is providing support
• 1260 is the next resistance line
• Current range: 1232 to 1260

Further levels in both directions:

• Below: 1232, 1199, 1175 and 1146
• Above: 1260, 1285 and 1307

OANDA’s Open Positions Ratio

XAU/USD ratio is almost unchanged in the Tuesday session. Currently, long positions have a strong majority (67%), indicative of trader bias towards XAU/USD reversing directions and moving upwards. 

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