Gold Slips as Dollar Stems Broad Losses

Gold has reversed directions and posted losses in the Tuesday session. In North American trade, the spot price for an ounce of gold is $1333.83, down 0.52% on the day. It’s a light day on the release front, with just one US indicator.  The Empire State Manufacturing Index softened to 17.7, missing the forecast of 18.5 points. This marked the weakest reading since June.

Gold is trading in red territory on Tuesday, after posting four straight winning sessions. On Monday, the base metal climbed above $1344, for the first time since early September of 2016. The US dollar has lost ground against its major rivals, notably the euro. There are two main reasons for the euro’s recent rally. First, the ECB minutes from the December meeting were hawkish, leading to speculation that the ECB could wind up its asset purchase program in September. In the minutes, policymakers said that risks to the current outlook were to the upside, which could necessitate a gradual shift in guidance in the next few months. As for the eurozone, the minutes stated that the economy was displaying “continued robust and increasingly self-sustaining economic expansion”.

The second factor is major progress in coalition negotiations in Germany, raising hopes that the political stalemate may soon be over. There was a report on Friday that Angela Merkel’s conservative bloc and the Social Democrats have agreed on a coalition draft. This ends months of political uncertainty, which has eroded Merkel’s standing and also sidelined Germany on key issues such as Brexit and political reform in the eurozone. Still, the talks are only in the preliminary stage, and further negotiations will take at least several weeks before it is clear that the talks have been successful.

Gold often gains ground when investor risk appetite is weak, but that has not been the case early in 2018. Global stock markets are pointing higher and US economic numbers have been strong. This points to the broadly weaker dollar as the catalyst for stronger gold prices. If major currencies such as the euro and Japanese yen continue to make inroads against the dollar, traders can expect the gold rally to continue.

 

XAU/USD Fundamentals

Tuesday (January 16)

  • 8:30 US Empire State Manufacturing Index. Estimate 18.5

*All release times are GMT

*Key events are in bold

 

XAU/USD for Tuesday, January 16, 2018

XAU/USD January 16 at 12:30 EST

Open: 1340.80 High: 1342.44 Low: 1331.91 Close: 1333.82

 

XAU/USD Technical

S3 S2 S1 R1 R2 R3
1260 1285 1307 1337 1375 1416
  • XAU/USD edged higher in the Asian session. The pair reversed directions and dropped considerably in European trade. XAU/USD is steady in North American trade
  • 1307 is providing weak support
  • 1337 was tested earlier in resistance. It remains a weak 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

In the Tuesday session, XAU/USD ratio is showing short positions with a majority (56%). This is indicative of trader bias towards XAU/USD continuing to move to lower 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.

Kenny Fisher

Kenny Fisher

Currency Analyst at Market Pulse
Kenny Fisher joined OANDA in 2012 as a Currency Analyst. Kenny writes a daily column about current economic and political developments affecting the major currency pairs, with a focus on fundamental analysis. Kenny began his career in forex at Bendix Foreign Exchange in Toronto, where he worked as a Corporate Account Manager for over seven years.