Gold Posts Gains, Fed Minutes Next

Gold remains choppy this week, and has posted  slight gains on Wednesday. In the North American session, the base metal is trading at $1212.50 an ounce. On the release front, there was some positive news from the US inflation front, as PPI posted a gain of 0.1%. This beat the estimate of -0.2%. Elsewhere, Building Permits met expectations, but Housing Starts faltered, slipping to a three-month low. Today’s highlight is the minutes from the most recent Federal Reserve policy meeting. Any hints from the Fed about future interest rate moves could have an immediate impact on gold prices.

Gold continues to enjoy a  superb start to 2016, and surged to a high of $1260 late last week, its highest level since February 2015. Market turmoil across the globe has put a worried frown on the face of most investors, who have responded by fleeing risk and snapping up safe-haven assets like gold. The collapse of oil prices and the China slowdown have hurt the economies of developed countries, which are struggling with low inflation and weak global demand for oil and other exports. This economic turbulence which has characterized the early part of 2016 has been a boon for gold, and with these economic conditions likely to continue for some time, gold prices could make a push towards the $1300 level, which was last reached in January 2015.

All eyes are on the Federal Reserve, which will release the minutes of its January policy meeting later on Wednesday. After that meeting, Janet Yellen & Co. issued a cautious policy statement, saying that the Fed was “closely monitoring global economic and financial developments and is assessing their implications for the labor market and inflation”. The decision to hold interest rates at 0.25% was unanimous, and the Fed acknowledged that the US economy was slowing down. Gone was the optimism which characterized the December statement, when the Fed raised rates and hinted at further rate hikes in 2016. Given the current economic situation, many experts expect no more than two rate hikes this year, perhaps in June and December. At the same time, any improvement in key US numbers will heat up speculation about a possible March hike.

There was an interesting development last week when Janet Yellen appeared before Congress and refused to rule out negative interest rates. The Fed has rejected making such a move in the past, and this is unlikely to change. Still, Negative Interest Rate Policies (NIRP) has become a relevant tool for central banks. The Bank of Japan shocked the markets in January when it adopted negative rates, and the ECB has had this policy in place for some time on deposits, and has hinted that it could adopt this scheme to its benchmark rate, which currently stands at 0.05%. Such a scheme is supposed to combat deflation and boost economic growth by pressuring banks to increase lending

XAU/USD Fundamentals

Wednesday (Feb. 17)

• 8:30 US Building Permits. Estimate 1.21M. Actual 1.20M
• 8:30 US PPI. Estimate -0.2%. Actual +0.1%
• 8:30 US Core CPI. Estimate 0.1%. Actual 0.4%
• 8:30 US Housing Starts. Estimate 1.16M. Actual 1.10M
• 9:15 US Capacity Utilization Rate. Estimate 76.7%. Actual 77.1%
• 9:15 US Industrial Production. Estimate 0.3%. Actual 0.1%
• 14:00 FOMC Meeting Minutes
• 16:45 New Zealand PPI Input
• 16:45 New Zealand PPI Output
• 18:00 US FOMC Member James Bullard Speaks

Upcoming Key Events

Thursday (Feb. 18)

• 8:30 US Philly Fed Manufacturing Index. Estimate -2.9 points
• 8:30 US Unemployment Claims. Estimate 275K

*Key releases are highlighted in bold

*All release times are EST

*Key events are in bold

XAU/USD for Wednesday, February 17, 2016

XAU/USD February 17 at 11:55 EST

Open: 1207.97 Low: 1191.00 High: 1217.09 Close: 1213.64

XAU/USD Technical

• XAU/USD has been marked by choppy trading for most of the day
• 1205 was tested in support earlier in the day and remains a weak line
• There is resistance at 1232
• Current range: 1205 to 1232

Further levels in both directions:

• Below: 1205, 1191, 1175 and 1151
• Above: 1232, 1255 and 1279

OANDA’s Open Positions Ratio

XAU/USD ratio remains unchanged, as long positions command a strong majority (62%). This is indicative of trader bias towards the pair continuing its current upward movement.

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.