XAU/USD – Gold Slightly Higher Ahead of Federal Reserve Announcement

Gold continues to have an uneventful week. Will this change after the Federal Reserve’s rate statement later on Wednesday? In North American trade, the spot price for an ounce of gold is $1163.12. On the release front, core retail sales and retail sales posted weak gains of 0.2% and 0.1% respectively, which fell short of estimates. There was better news on the inflation front, as PPI surprised with a gain of 0.4%, marking a five-month high. Thursday will also be busy, as the US releases CPI, the Philly Fed Manufacturing Index and unemployment claims.

Gold has recorded weekly losses for five straight weeks and the metal is currently trading at its lowest level since early February. The downward trend could continue, with the Fed likely to raise interest rates by a quarter percentage point. Gold prices move inversely with interest rate movement, as higher rates make the US dollar more attractive to investors versus gold, which pays no interest.

It’s crunch time, as the markets anxiously await the Federal Reserve’s rate statement later on Wednesday. The markets have priced in a rate hike at 95 percent, most likely a quarter-point increase. This would mark the first hike by the Fed since last December, and anticipation of a hike has translated into strong gains for the greenback. Even though the rate move has been expected (and priced in) for some time, the markets will be monitoring the statement closely – gold could react based on whether the markets view the Fed’s move as a dovish hike or hawkish hike. What can we expect from the Fed after the hike? The Fed has indicated that it plans to raise rates gradually in 2017. However, this monetary outlook could change, given Trump’s declarations that he will increase government spending and cut taxes, which could lead to higher inflation levels. Once the new administration’s economic policies become clearer, the Fed may send signals to the markets as to its rate plans in early 2017.

XAU/USD Fundamentals

Wednesday (December 14)

• 8:30 US Core Retail Sales. Estimate 0.4%. Actual 0.2%
• 8:30 US PPI. Estimate 0.1%. Actual 0.4%
• 8:30 US Retail Sales. Estimate 0.3%. Actual 0.1%
• 8:30 US Core PPI. Estimate 0.2%. Actual 0.4%
• 9:15 US Capacity Utilization Rate. Estimate 75.1%
• 9:15 US Industrial Production. Estimate -0.2%
• 10:00 US Business Inventories. Estimate -0.1%
• 10:30 US Crude Oil Inventories. Estimate -1.4M. Actual -2.6M
• 14:00 US FOMC Economic Projections
• 14:00 US FOMC Statement
• 14:00 US Federal Funds Rate. Estimate <0.75%
• 14:30 US FOMC Press Conference

Upcoming Key Events

Thursday (December 15)

• 13:30 US CPI. Estimate 0.2%
• 13:30 US Core CPI. Estimate 0.2%
• 13:30 US Philly Fed Manufacturing Index. Estimate 9.1
• 13:30 US Unemployment Claims. Estimate 258K

*All release times are EST

*Key events are in bold

XAU/USD for Wednesday, December 14, 2016

XAU/USD December 14 at 11:45 EST

Open: 1158.55 High: 1165.29 Low: 1157.83 Close: 1163.12

XAU/USD Technical

• XAU/USD has posted slight gains in the Wednesday session
• 1146 is providing support
• 1174 is the next resistance line
• Current range: 1146 to 1174

Further levels in both directions:

• Below: 1146, 1130 and 1111
• Above: 1174, 1205, 1223 and 1245

OANDA’s Open Positions Ratio

XAU/USD ratio is unchanged in the Thursday session. Currently, long positions command a substantial majority (76%). This is indicative of trader bias towards XAU/USD continuing to move to higher levels.

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