Gold Climbs to 3-Month Highs, Pushes Past $1150

Gold has posted further gains on Thursday, as the metal trades at a spot price of $1151.88 an ounce in the North American session. In economic news, US Unemployment Claims disappointed, climbing to 285 thousand. Manufacturing numbers were a mix, as Preliminary Unit Labor Costs posted a strong gain of 4.5%, well above the forecast. However, US Factory Orders posted a decline of 2.9%, missing expectations.

Gold prices have been moving higher for most of the week, and have climbed above the $1150 line for the first time since the end of October. Market turbulence in early 2016, caused by the Chinese slowdown and collapse in oil prices, has been great news for gold. The metal climbed 5.3% in January and has improved a further 3.3% in the first week of February. Weak US numbers this week have pushed gold higher against the US dollar. On Wednesday, ADP Nonfarm Payrolls dropped to 205 thousand in January, compared to 257 thousand a month earlier.  There was more bad news from ISM Non-Manufacturing PMI, a key gauge of the services sector. The index dipped to 53.2 points in January, its worst showing since March 2014. On Thursday, Unemployment Claims rose to 285 thousand, above the expectations of 279 thousand. The week wraps up with the official Nonfarm Payrolls report on Friday. With the markets expecting a sharp drop compared to the previous reading, the markets could react negatively and send gold prices even higher.

Is the US economy in trouble? This key question is on the mind of many market players, who are concerned about lukewarm US numbers, which have characterized the first month of 2016. Strong growth and a robust labor market in the second half of 2015 helped convince the Federal Reserve to raise interest rates in December, but the change in economic climate led to the Fed to hold off on another rate hike in January and issue a cautious policy statement. If employment and inflation numbers do not improve soon, it’s unlikely that the Fed will raise rates in March. In the heady days following the Fed’s historic rate hike, there was talk of up to four rate hikes in 2016, but this appears unlikely, given current economic conditions.

XAU/USD Fundamentals

Thursday (Feb. 4)

• 2:15 US FOMC Member Eric Rosengren Speaks
• 7:30 US Challenger Job Cuts. Actual 41.6%
• 8:30 US Unemployment Claims. Estimate 279K. Actual 285K
• 8:30 US Preliminary Nonfarm Productivity. Estimate -1.5%. Actual -3.0%
• 8:30 US Preliminary Unit Labor Costs. Estimate 3.9%. Actual 4.5%
• 10:00 US Factory Orders. Estimate -2.5%. Actual -2.9%
• 10:30 US Natural Gas Storage. Estimate -170B. Actual -152B

Friday (Feb. 5)

• 8:30 US Nonfarm Employment Change. Estimate 189K
• 8:30 US Average Hourly Earnings. Estimate 0.3%

*Key releases are highlighted in bold

*All release times are EST

*Key events are in bold

XAU/USD for Thursday, February 4, 2016

XAU/USD February 4 at 12:10 EST

Open: 1141.93 Low: 1156.73 High: 1156.73 Close: 1151.88

XAU/USD Technical

• XAU/USD was flat in the Asian session. The pair posted slight gains in the European session and has leveled off in North American trade.
• 1151 has switched to support as gold continues to gain ground. This weak line could see further action during the day
• There is resistance at 1175
• Current range: 1134 to 1151

Further levels in both directions:

• Below: 1151, 1134, 1098 and 1080
• Above: 1175, 1191 and 1205

OANDA’s Open Positions Ratio

XAU/USD ratio is unchanged. Long positions have a solid majority (58%), which is indicative of strong trader bias towards gold continuing to move higher.

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.