Gold Gains Ground on Trade War Concerns

Gold has posted strong gains in the Thursday session, after trading sideways on Wednesday. In North American trade, the spot price for an ounce of gold is $1313.89, up 0.69% on the day. On the release front, unemployment claims edged up to 211 thousand, easily beating the estimate of 225 thousand. In the services sector, ISM Non-Manufacturing PMI dropped for a third straight month, coming in at 56.8 points, above the estimate of 56.1 points. On Friday, the US releases three employment indicators – wage growth, nonfarm payrolls and the unemployment rate.

As expected, the Federal Reserve maintained the benchmark rate at a target of 1.5% to 1.75% on Wednesday. The rate statement was significant, with policymakers noting that “overall inflation has moved closer to 2 percent”. This was more hawkish than the March statement, which said that inflation indicators “have continued to run below 2 percent”. With inflation moving closer to the Fed target of 2 percent, there is a stronger likelihood that the Fed will upgrade its rate projection from three to four hikes in 2018. The odds of a fourth rate hike this year stand at 50%. The Fed rate statement also noted that “market-based measures of inflation compensation remain low”, a reference to soft wage growth, which is at 2.7%, lower than the 3% rate that the Fed would like to see.

The US has sent a trade delegation to China to discuss recent tensions in relations between the two countries over tit-for-tat tariffs. However, the markets are not expecting any breakthrough, as the delegation will be in China for only a few days. China and the US have engaged in a nasty trade battle, imposing stiff tariffs on a wide range of products. If the two sides do not display some flexibility and goodwill, there are fears that the tariffs could lead to a global recession. A trade war between the world’s largest two economies would be a lose-lose for both China and Beijing, but would be a boon for gold, which is a traditional safe-haven asset in times of trouble.

XAU/USD Fundamentals

Thursday (May 3)

• 7:30 US Challenger Job Cuts. Actual -1.4%
• 8:30 US Preliminary Nonfarm Productivity. Estimate 0.9%. Actual 0.7%
• 8:30 US Preliminary Unit Labor Costs. Estimate 3.1%. Actual 2.7%
• 8:30 US Trade Balance. Estimate -50.0B. Actual -49.0B
• 8:30 US Unemployment Claims. Estimate 225K. Actual 211K
• 9:45 US Final Services PMI. Estimate 54.4. Actual 54.6
• 10:00 US ISM Non-Manufacturing PMI. Estimate 58.1. Actual 56.8
• 10:00 US Factory Orders. Estimate 1.3%. Actual 1.6%
• 10:30 US Natural Gas Storage. Estimate 47B. Actual 62B

Friday (May 4)

• 8:30 US Average Hourly Earnings. Estimate 0.2%
• 8:30 US Nonfarm Employment Change. Estimate 189K
• 8:30 US Unemployment Rate. Estimate 4.0%

*All release times are DST

*Key events are in bold

XAU/USD for Thursday, May 3, 2018

XAU/USD May 3 at 11:55 DST

Open: 1304.86 High: 1318.18 Low: 1304.66 Close: 1313.89

XAU/USD Technical

• XAU/USD showed little movement in the Asian session. The pair posted considerable gains in European trade but has given up much of those gains in North American trade
• 1307 is providing support
• 1337 is the next resistance
• Current range: 1307 to 1337

Further levels in both directions:

• Below: 1307, 1285, 1260 and 1236
• Above: 1337, 1375 and 1416

OANDA’s Open Positions Ratio

XAU/USD ratio is showing little movement in the Thursday session. Currently, long positions have a majority (70%), indicative of trader bias towards XAU/USD continuing to move upwards.  

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.