Gold Rally Pauses Ahead of FOMC Minutes

Gold has paused on Wednesday, after posting strong gains in the Tuesday session. In North American trade, the spot price for an ounce of gold is $1316.19, down 0.06% on the day. On the release front, ISM Manufacturing PMI improved to 59.7, beating the forecast of 58.3 points. This marked a 3-month high. Later in the day, the Federal Reserve will release the minutes from its December policy meeting. On Thursday, the US releases ADP Nonfarm Payrolls and unemployment claims.

Gold continues to shine early in the New Year, after climbing 2.2% in December. On Tuesday, gold touched a high of $1321, its highest level since September 15. With the US economy expanding above 3% and the Fed poised to raise rates for a second straight month, the gold rally has surprised many experts, as stronger economic conditions usually translate into increased risk appetite, at the expense of safe haven assets such as gold. Traders can expect some movement from gold on Friday, as the US releases two key employment indicators – wage growth and nonfarm payrolls. If these releases beat expectations, the dollar could recover some of its recent losses and send gold prices lower.

The Federal Reserve will be in the spotlight on Wednesday, with the release of the minutes of the December policy meeting. At that meeting, the Fed raised rates by 25 basis points, to a range between 1.25-1.50%. The hike marked a vote of confidence in the US economy, and if the minutes are hawkish, the US dollar could gain ground. The economy is in fine form, expanding at an impressive clip of above 3 percent. If this pace continues, the Fed could raise rates up to four times in 2018. Currently, the CME Group has priced in a January rate hike at 98.5%. Despite the rosy economic conditions, inflation has been chronically soft, well below the Fed target of 2 percent. Outgoing Fed Chair Janet Yellen and other FOMC members have said that they expect that the strong labor market will push up wages and trigger higher inflation, but this is yet to happen.

XAU/USD Fundamentals

Wednesday (January 3)

• 10:00 US ISM Manufacturing PMI. Estimate 58.1. Actual 59.7
• 10:00 US Construction Spending. Estimate 0.6%. Actual 0.8%
• 10:00 US ISM Manufacturing Prices. Estimate 64.8. Actual 69.0
• All Day – US Total Vehicle Sales. Estimate 17.5M
• 14:00 US FOMC Meeting Minutes

Thursday (January 4)

• 8:15 US ADP Nonfarm Employment Change. Estimate 191K
• 8:30 US Unemployment Claims. Estimate 241K
• 14:00 US FOMC Meeting Minutes

*All release times are GMT

*Key events are in bold

XAU/USD for Wednesday, January 3, 2018

XAU/USD January 3 at 12:15 EST

Open: 1317.62 High: 1321.59 Low: 1311.78 Close: 1316.19

XAU/USD Technical

• XAU/USD posted small gains in the Asian session but retracted. The pair edged higher in European trade but has flattened out in North American trade
• 1307 is providing support
• 1337 is the next resistance line
• Current range: 1307 to 1337

Further levels in both directions:

• Below: 1307, 1285, 1260 and 1240
• Above: 1337, 1375 and 1416

OANDA’s Open Positions Ratio

XAU/USD ratio is unchanged in the Wednesday session. Currently, long positions have a majority (54%), indicative of trader bias towards XAU/USD reversing directions and moving to higher ground.

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.