XAU/USD – Gold Steady, Shrugs Off Mixed US Numbers

Gold is showing little movement in the Thursday session, continuing the lack of movement seen in the Wednesday session. In North American trade, the spot price for one ounce stands at $1132.31. On the release front, US Final GDP posted a gain of 3.5%, above the forecast of 3.3%. Durable goods reports were a mixed bag. Core Durable Goods Orders gained 0.5%, above the forecast of 0.2%. Durable Goods Orders posted a sharp decline of 4.6%, but this was better than the forecast of -4.9%. On the employment front, unemployment claims jumped to 275 thousand, much weaker than the forecast of 255 thousand. On Friday, the US publishes New Home Sales and UoM Consumer Sentiment.

The US economy continues to expand at a brisk clip, as underscored by the most recent revision to third quarter GDP. The Final GDP reading of 3.5% beat the estimate of 3.3%. This figure marked an upward revision of the previous GDP estimate of 3.2%. The stellar reading can be attributed to stronger consumer spending and an increase in business investment, and marked the strongest growth rate since the third quarter of 2015.

The US economy has looked strong in the fourth quarter, as underscored by Thursday’s strong GDP report. However, strong economic growth has not been good news for gold prices, which have plummeted 14 percent since October 1. The metal lost ground after the Federal Reserve raised rates last week, and with the Fed projecting up to four rate hikes in 2017, gold prices could continue to head downwards. Last week, gold touched a low of $1122, marking its lowest level since February.

When the Federal Reserve raised interest rates in December 2015, the confident Fed predicted a series of rate hikes in 2016 in order to keep a hot US economy in check. However, the Fed remained on the sidelines throughout 2016 and refrained from any rate hikes until last week. There were several false starts along the way, as expectations that the Fed would raise rates earlier in 2016 failed to materialize. This led to sharp criticism of Janet Yellen for failing to provide a clear monetary policy. Yellen seems to have been keenly aware of this, as the Fed did everything short of buying advertisements in daily newspapers to get out the message that it planned to raise rates in December. Indeed, a rate hike was priced in as high as 100% by some analysts. Yellen should certainly be commended for a clear message to the markets.

With the Fed finally pressing the rate trigger, what’s next for Janet Yellen & Co.? In September, Fed officials said they expected two rate hikes in 2017, but the Fed is now projecting three or even four hikes next year. However, projections need to be adjusted to economic conditions, and the markets will understandably be somewhat skeptical about Fed rate forecasts. As well, the wild card of Donald Trump could also play a critical role in monetary policy. Trump’s economic platform remains sketchy, apart from declarations that he will increase government spending and cut taxes. Still, there is growing talk about ‘Trumpflation’, with the markets predicting that Trump’s policies will increase inflation levels, which have been persistently weak. If inflation levels do heat up, there will be pressure on the Fed to step in and raise interest rates.

XAU/USD Fundamentals

Thursday (December 22)

• 8:30 US Core Durable Goods Orders. Estimate 0.2%. Actual 0.5%
• 8:30 US Final GDP. Estimate 3.3%. Actual 3.5%
• 8:30 US Unemployment Claims. Estimate 255K. Actual 275K
• 8:30 US Durable Goods Orders. Estimate -4.9%. Actual -4.6%
• 8:30 US Final GDP Price Index. Estimate 1.4%. Actual 1.4%
• 9:00 US HPI. Estimate 0.4%. Actual 0.4%
• 10:00 US Core PCE Price Index. Estimate 0.1%. Actual 0.0%
• 10:00 US Personal Spending. Estimate 0.4%. Actual 0.2%
• 10:00 US CB Leading Index. Estimate 0.2%. Actual 0.0%
• 10:00 US Personal Income. Estimate 0.3%. Actual 0.0%
• 10:30 US Natural Gas Storage. Estimate -201B. Actual -209B

Friday (December 23)

• 10:00 US New Home Sales. Estimate 575K
• 10:00 US Revised UoM Consumer Sentiment. Estimate 98.2

*All release times are EST

*Key events are in bold

XAU/USD for Thursday, December 22, 2016

XAU/USD December 22 at 11:00 EST

Open: 1130.89 High: 1134.14 Low: 1127.75 Close: 1132.31

XAU/USD Technical

• XAU/USD was flat in the Asian session. The pair has posted limited movement in the European and North American sessions
• 1130 is under pressure in support
• 1146 is the next resistance line
• Current range: 1130 to 1146

Further levels in both directions:

• Below: 1130, 1111, 1076 and 1043
• Above: 1146, 1174 and 1199

OANDA’s Open Positions Ratio

XAU/USD ratio remains unchanged this week. Currently, long positions command a substantial majority (75%). This is indicative of trader bias towards XAU/USD breaking out and climbing 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.