Gold Rebounds as BoJ, ECB Eye Further Easing

Gold has rebounded on Thursday with gains, erasing most of the losses sustained in the Wednesday session. In the North American session, the metal is trading at a spot price of $1329.35 per ounce. On the release front, it was a busy day and US indicators were mostly positive. Unemployment Claims and Existing Home Sales both beat expectations. However, the Philly Fed Manufacturing Index was well short of the estimate, posting a decline of 2.9 points.

Gold has gained ground as speculation increases that major central banks (with the exception of the Federal Reserve) are planning or at least open to further easing. This is bullish for gold, which moves opposite to interest rate movements. The BoE held steady last week, but is widely expected to lower rates at its August meeting. The ECB also stood pat on Thursday, but Mario Draghi sent out a dovish message and reiterated that the bank remains committed to further easing if needed. Finally, the BoJ will be meeting later in July, and could adopt further easing in order to boost the weak economy and combat deflation.

The Federal Reserve will meet for a policy meeting on July 27 but is unlikely to announce a rate hike at that time, given current economic conditions. Is the Federal Reserve leaning more towards a rate hike before the end of the year? The markets appear to think so, as the chances of a rate hike this year has been priced in at 47%, up from just 20% at the start of July. This positive sentiment is a result of strong retail sales and housing reports over the past week. Another rate hike will be data-dependent, so if key indicators beat expectations, speculation of a rate hike will continue to increase. However, the Fed will be hesitant to make a move if inflation remains stuck at very low levels, nowhere near the Fed’s target of around 2 percent.

XAU/USD Fundamentals

Wednesday (July 20)

• 10:30 US Crude Oil Inventories. Estimate -1.3M. Actual -2.3M

Thursday (July 21)

• 8:30 US Philly Fed Manufacturing Index. Estimate 5.1
• 8:30 US Unemployment Claims. Estimate 271K
• 10:00 US Existing Home Sales. Estimate 5.48M

*Key releases are highlighted in bold

*All release times are EDT

XAU/USD for Thursday, July 21, 2016

XAU/USD July 21 at 13:50 EDT

Open: 1312.74 High: 1331.05 Low: 1310.76 Close: 1329.35

XAU/USD Technical

• XAU/USD posted small gains in the Asian and European sessions. The pair has posted strong gains in North American trade
• 1331 is under strong pressure as resistance. It could break during the North American session
• 1307 is providing support
• Current range: 1307 to 1331

Further levels in both directions:

• Below: 1307, 1279 and 1255
• Above: 1331, 1361, 1388 and 1416

OANDA’s Open Positions Ratio

XAU/USD ratio is almost unchanged on Thursday. Currently, long positions command a majority (63%), indicative of trader bias towards XAU/USD continuing to gain 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.