Gold Steady as Yellen Says Fed Will Move on Rates, Balance Sheet

Gold has posted slight gains in the Wednesday session. In North American trade, spot gold is trading at $1221.34 per ounce, up 0.32% on the day. In economic news, Janet Yellen testified before the House Financial Services Committee. On Thursday, the US releases PPI and unemployment claims. As well, Janet Yellen will testify before the Senate Banking Committee.

Janet Yellen played it safe in front of a congressional committee, as her message to the markets didn’t contain any surprises. Yellen reiterated that the Fed planned to raise rates “gradually”, and added that the Fed would begin trimming its balance sheet before the end of the year. The Fed chair was careful not to provide any timelines, but many analysts are circling September for a balance sheet reduction, with a rate hike to follow in December. However, despite Yellen’s assurances, the markets remain lukewarm about a rate hike before the end of the year, given a slower US economy and stubbornly low inflation. The CME Group has pegged a December rate increase at just 47%, while other forecasts are pointing to odds as low as 40%. Hints from the Fed will not suffice to bring investors on board – unless growth and inflation numbers move higher, the markets are likely to remain lukewarm about the likelihood of a third rate hike in 2017.

Gold prices are inversely linked to interest rate hikes, so recent developments involving central banks (aside from the Fed, which continues to talk about a December rate hike) could have a significant impact on the metal. At the recent ECB forum, the heads of the ECB and Bank of England made hawkish statements about tightening monetary policy, and the euro and pound reacted with sharp gains. As well, the Bank of Canada has sent out messages that it will raise rates, and the markets are expecting a quarter-point hike on Wednesday, which would mark the first rate increase in two years. The trend towards tighter policy should not be a complete surprise, as the global economy has been improving in recent months. The ECB and BoE have yet to make any rate moves, but the fact that policymakers are deliberating over tightening policy could lead to expectations in the markets of rate hikes, which in turn would send gold prices lower.

XAU/USD Fundamentals

Thursday (July 13)

• 10:00 US Fed Chair Janet Yellen Testifies
• 10:30 US Crude Oil Inventories. Estimate -3.2M. Actual -7.6M
• 13:01 US 10-y Bond Auction
• 14:00 US Beige Book

Upcoming Key Events

Thursday (July 14)

• 8:30 US PPI. Estimate 0.0%
• 8:30 US Unemployment Claims. Estimate 245K
• 10:00 US Federal Chair Janet Yellen Testifies

*All release times are EDT

*Key events are in bold

XAU/USD for Wednesday, July 12, 2017

XAU/USD July 12 at 11:50 EST

Open: 1217.45 High: 1225.85 Low: 1213.53 Close: 1221.34

XAU/USD Technical

• XAU/USD posted small gains in the Asian session but retracted in European trade. The pair has posted gains in choppy trade in the North American session
• 1199 is providing support
• 1232 is the next resistance line
• Current range: 1199 to 1232

Further levels in both directions:

• Below: 1199, 1170 and 1146
• Above: 1232, 1260, 1285 and 1307

OANDA’s Open Positions Ratio

XAU/USD ratio is showing slight movement towards long positions. Currently, long positions have a majority (78%). This is indicative of XAU/USD continuing to post gains. 

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