Gold Drifting as Markets Eye FOMC Statement

Gold price is almost unchanged on Wednesday, trading at a spot price of $1228.64 an ounce in the North American session. On the release front, today’s highlight is the Federal Reserve rate announcement and policy statement. Earlier, US consumer inflation indicators were mixed. CPI declined by 0.2%, matching the forecast. Core CPI looked stronger, posting a gain of 0.3%, edging above the estimate of 0.2%. Building Permits came in at 1.20 million, within expectations.

All eyes are on the Federal Reserve, which will set interest rates and release a policy statement on Wednesday. Gold is sensitive to monetary policy decisions and the resulting currency moves, and the recent slide in gold prices reflect uncertainty on the part of investors as to what the Federal Reserve has planned. Gold prices showed strong volatility after the ECB rate announcement. Gold initially dropped after the ECB announced strong easing measures last week, only to reverse directions and climb sharply after ECB head Mario Draghi stated that the central bank was not planning any further rate cuts. Gold is unlikely to treat the markets to another roller-coaster ride after the Fed announcement, but traders should be prepared for some movement after the Fed statement.

What can we expect from the Federal Reserve at the conclusion of their policy meeting? Most experts have predicted that the Fed will choose to remain on the sidelines and not raise rates, given current economic conditions. Although the US economy continues to expand, growth has been softer in 2016 compared to the red-hot pace which marked the economy in the second half of 2015. The primary trouble spot in the economy is the inflation picture, as inflation levels remains very low, a result of weak global demand and low oil prices. Fed policymakers are divided on how to respond to persistently low inflation. Some FOMC members favor preempting inflation with a rate hike, while others feel that the economy is currently too fragile for such a move.

The markets are not anticipating any rate move at the upcoming Fed meeting, but there is intense interest in the Fed’s “dot plot” (a chart of rate hike expectations released each quarter). When the Fed raised interest rates in December, the dot plot called for four hikes in 2016 and projected rates would be between 1.25% and 1.50% by the end of 2016. Many experts have argued that the dot plot is not in sync with market projections of rate increases, and the December dot plot releases appears to bolster their argument. With the cooling off of the US economy early in 2016, the March dot plot is likely to project two or three rate moves in 2016, but many market players see the Fed opting not to raise rates again until next year.

XAU/USD Fundamentals

Wednesday (March 16)

• 8:30 US Building Permits. Estimate 1.20M. Actual 1.17M
• 8:30 US CPI. Estimate -0.2%. Actual -0.3%.
• 8:30 US Core CPI. Estimate 0.2%. Actual 0.3%
• 8:30 US Housing Starts. Estimate 1.15M. Actual 1.18M
• 9:15 US Capacity Utilization Rate. Estimate 76.9%. Actual 76.7%
• 9:15 US Industrial Production. Estimate -0.2%. Actual -0.5%
• 10:30 US Crude Oil Inventories. Estimate 2.9M. Actual 1.3M
• 14:00 FOMC Statement
• 14:00 FOMC Federal Funds Rate
• 14:30 FOMC Press Conference

Upcoming Key Events

Thursday (March 17)

• 8:30 US Philly Fed Manufacturing Index. Estimate -1.4
• 8:30 US Unemployment Claims. Estimate 267K

*Key releases are highlighted in bold

*All release times are DST

XAU/USD for Wednesday, March 16, 2016

XAU/USD March 16 at 12:50 DST

Open: 1232.84 Low: 1226.73 High: 1235.54 Close: 1228.64

XAU/USD Technical

• XAU/USD has shown marginal movement throughout the day
• 1232 was tested earlier in resistance and remains a weak line
• 1205 is providing support
• Current range: 1205 to 1232

Further levels in both directions:

• Below: 1205, 1191 and 1170
• Above: 1232, 1255, 1279 and 1303

OANDA’s Open Positions Ratio

XAU/USD ratio remains unchanged, as long positions retain a majority (54%). This is indicative of trader bias towards gold reversing directions and heading 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.