Gold jumps after Fed statement, but swings continue

Gold continues to show volatility this week. In Thursday’s North American session, the spot price for one ounce of gold is $1310.52, down 0.14% on the day. Earlier on Thursday, gold broke above $1320, its highest level since late February. On the release front, the Philly Manufacturing Index and unemployment claims both improved and beat expectations.

A sharply dovish Fed statement boosted gold prices by over 1.0%, but the metal was unable to hold onto all of the gains, as the up-and-down swings continue on Thursday. The tone of the rate statement and the pessimistic rate outlook caught investors off guard. The Fed’s rate outlook (dot plot), which is released each quarter, showed that a majority of FOMC members expect no rate hikes in 2019. This was in sharp contrast to the previous quarter’s forecast, in which the FOMC projected two hikes this year.

The rate statement was markedly dovish, stating that economic activity “has slowed”. Policy makers singled out slower growth in household spending and business investment and noted that inflation has decreased due to lower energy prices. The Fed also announced that it would stop reducing its balance sheet by $50 billion a month. This move is a loosening of policy and is intended to stimulate the economy. The new Fed forecast projects GDP growth of 2.1%, down from 2.3% in December.

Another factor contributing to market movement is the uncertainty over the U.S-China trade talks. There have been growing expectations that the sides will reach an agreement, with a summit between President Trump and Chinese President Xi to follow. However, President Trump announced a tougher negotiating position on Tuesday, saying that the U.S. would maintain tariffs on China until it was clear that China was complying with a deal. Chinese officials are likely to insist that tariffs be removed as soon as a deal is signed, so a deadlock could be in the offing. Trump’s hard-line stance could hamper negotiations, and nervous investors could respond by flocking to safe-haven gold. The trade talks have taken a break, but are expected to resume next week.

Asymmetric trade deal sinks Fed rally

Dollar mixed as Fed rally fizzles

Gold – Will the rally continue? (video)

XAU/USD Fundamentals

Thursday (March 21)

  • 8:30 US Philly Fed Manufacturing Index. Estimate 4.6. Actual 13.7
  • 8:30 Unemployment Claims. Estimate 226K. Actual 221K
  • 10:00 US CB Leading Index. Estimate 0.1%. Actual 0.2%
  • 10:30 US Natural Gas Storage. Estimate -49B. Actual -47B

*All release times are EST

*Key events are in bold

XAU/USD for Thursday, March 21, 2019

XAU/USD March 21 at 11:40 DST

Open: 1312.35 High: 1320.43 Low: 1308.82 Close: 1310.52

XAU/USD Technical

S3 S2 S1 R1 R2 R3
1261 1284 1306 1326 1344 1365

XAU/USD posted gains in the Asian session. The pair edged lower in European trade but then recovered. XAU/USD has dropped considerably in North American trade

  • 1306 is providing support
  • 1326 is the next resistance line
  • Current range: 1306 to 1326

Further levels in both directions:

  • Below: 1306, 1284, 1261 and 1243
  • Above: 1326, 1344 and 1365

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.