Gold Remains Close to 5-Week Low as Fed Sounding Hawkish

Gold is showing little movement in the Wednesday session. In North American trade, spot gold trading at $1244.59 per ounce. In economic news, Existing Home Sales improved to 5.62 million, beating the estimate of 5.54 million. Crude Oil Inventories posted a sharp drawdown of 2.5 million, larger than the estimate of -1.2 million. On Thursday, the US releases unemployment claims.

The Fed has tightened policy twice this year and has hinted at one more rate hike in the second half of 2017. As for the markets, they have circled the December policy meeting as the most likely date for a rate move. The CME Group has pegged the odds of a September hike at just 13%, compared to 18% a week ago. However, the odds for a December increase are at 49%, and this could increase if Fed policymakers continue to wax positive about the economy. Earlier this week, Federal Reserve of New York President Charles Dudley continued the upbeat message, cautioning the Fed against halting its current tightening cycle. Dudley said that the tight labor market should lead to higher wages, which in turn would push inflation to the Fed’s target of 2.0%. The markets like what they are hearing – not just the positive spin on the economy, but also that the Fed has signaled that it plans to reduce the bloated balance sheet of $4.2 trillion.

Although gold prices remain close to 5-week lows, the uncertainty over Brexit has prevented gold from falling even lower. Just a few weeks ago, Prime Minister Theresa May was confidently peddling a hard Brexit, putting Europe on notice that if she didn’t like what the Europeans were offering, the UK would leave the European Union without a deal. However, May was humiliated in the UK election, and will be forced to govern with a minority government that is dependent on the support of a small Irish party. May’s defiant tone has been replaced by a more conciliatory Philip Hammond, the British finance minister. Hammond has said that he wants a business-friendly and pragmatic Brexit and that no deal would be bad for the UK, although he won’t accept an agreement that is aimed at punishing Britain. At the insistence of the Europeans, there are three key issues which will lead off the negotiations: (1) the legal status of EU citizens in the UK; (2) the status of the border between Ireland and Northern Ireland; and (3) the financial obligations of the UK to the EU. This week’s formal meeting between the two sides was essentially a photo-op. However, with only two years earmarked for a Brexit agreement to be reached, the talks need to become substantive very soon if an agreement is to be reached.

XAU/USD Fundamentals

Wednesday (June 21)

• 10:00 US Existing Home Sales. Estimate 5.54M. Actual 5.62M
• 10:30 US Crude Oil Inventories. Estimate -1.2M. Actual -2.5M

Thursday (June 22)

• 8:30 US Unemployment Claims. Estimate 241K

*All release times are EDT

*Key events are in bold

XAU/USD for Wednesday, June 21, 2017

XAU/USD June 21 at 13:30 EST

Open: 1243.30 High: 1247.89 Low: 1240.90 Close: 1244.59

XAU/USD Technical

• XAU/USD edged higher in the Asian session. In European trade, the pair posted small gains but then retracted. XAU/USD has edged lower in North American trade
• 1232 is providing support
• 1260 is the next resistance line
• Current range: 1232 to 1260

Further levels in both directions:

• Below: 1232, 1199 and 1170
• Above: 1260, 1285, 1307 and 1337

OANDA’s Open Positions Ratio

XAU/USD ratio is showing gains towards long positions. Currently, long positions have a majority (65%), indicative of XAU/USD breaking out and climbing to higher levels. 

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