Gold Subdued, US Durable Goods, Employment Reports Improve

Gold continues is steady on Thursday, continuing the lack of movement which marked the Wednesday session. The metal is trading at a spot price of $1222.022 an ounce in the North American session. On the release front, US indicators enjoyed a strong day. Core Durable Goods Orders posted a gain of 0.4%, above the forecast. Unemployment claims fell to 268 thousand, beating expectations. Pending Home Sales surged 5.1%, well above the forecast. On Friday, the US releases Preliminary GDP and UoM Consumer Sentiment. Given the importance of these two indicators, unexpected readings could lead to volatility from XAU/USD.

Barring a huge turnaround on Friday, gold will record another weekly loss, its fourth in a row. The metal has declined 2.3% in value this week, and is struggling at 10-week lows against the US dollar. Strong US numbers this week have pushed hard on gold, and the metal is also under pressure as demand has fallen off sharply in India and China. As well, increasing speculation about a June rate hike has bolstered the dollar, as higher rates make the US dollar attractive compared to gold, an asset which does not offer any interest.

US numbers looked sharp on Thursday. Core Durable Goods Orders rebounded with a gain of 0.4%, edging above the forecast of 0.3%. Durable Goods Orders was excellent, jumping 3.4%, crushing the estimate of 0.3%. Unemployment claims, which dropped to 268 thousand, compared to the estimate of 275 thousand. There was more good news on the housing front, as Pending Home Sales posted an excellent gain of 5.1%, crushing the estimate of 0.6%. This marked the indicator’s strongest gain since June 2014.

The release of the Fed minutes has once again put a June rate hike on the table. The report was more hawkish than expected, and this resulted in strong volatility in the currency markets. It has also renewed market speculation about a June rate hike. Odds of a rate hike in June increased to 40% on Wednesday, compared to just 4% one week ago. Still, the Fed will be hard-pressed to raise rates if key indicators don’t show improvement, particularly inflation numbers. On Monday, FOMC member John Williams reiterated that he expected the Fed to raise rates two or three times in 2016. However, there appears to be a gap between the hawkish message some FOMC members are sending out and market sentiment, as many analysts are projecting only one rate hike this year. The guessing game as to what the Fed has in mind is likely to continue into June, but it’s safe to say that another rate move will be data-dependent, so stronger US numbers will increase the likelihood of a quarter-point hike at the June policy meeting. The Fed will be closely monitoring key events this week, notably GDP and UoM Consumer Sentiment.

XAU/USD Fundamentals

Thursday (May 26)

  • Day 1 – G7 Meetings
  • 6:10 US FOMC Member James Bullard Speaks
  • 8:30 US Core Durable Goods Orders. Estimate 0.3%. Actual 0.4%
  • 8:30 US Unemployment Claims. Estimate 275K. Actual 268K
  • 8:30 US Durable Goods Orders. Estimate 0.3%. Actual 3.4%
  • 10:00 US Pending Home Sales. Estimate 0.6% Actual 5.1%
  • 10:30 US Natural Gas Storage. Estimate 67B. Actual 71B
  • 12:00 US FOMC Jerome Powell Speaks

Upcoming Key Events

Friday (May 27)

  • 8:30 US Preliminary GDP. Estimate 0.8%
  • 10:00 US Revised UoM Consumer Sentiment. Estimate 95.7

*Key releases are highlighted in bold

*All release times are EDT

XAU/USD for Thursday, May 26, 2016

XAU/USD May 26 at 11:35 EDT

Open: 1225.35 Low: 1217.79 High: 1230.22 Close: 1220.04

XAU/USD Technical

S3 S2 S1 R1 R2 R3
1164 1191 1207 1232 1255 1279
  • XAU/USD has posted slight gains in Asian trade. The pair was flat in the European session and has retracted in North American trade
  • 1207 is providing support
  • There is resistance at 1232
  • Current range: 1207 to 1232

Further levels in both directions:

  • Below: 1207, 1191 and 1164
  • Above: 1232, 1255, 1279 and 1303

OANDA’s Open Positions Ratio

XAU/USD ratio has shown movement towards long positions on Thursday. Long positions maintain a strong majority (68%), indicative of trader bias towards XAU/USD moving to higher levels.

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

Market Analyst at OANDA
A highly experienced financial market analyst with a focus on fundamental and macroeconomic analysis, Kenny Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in major online financial publications including, Seeking Alpha and FXStreet. Kenny has been a MarketPulse contributor since 2012.