Gold Softens as US GDP Beats Estimate

Gold has lost ground in the Thursday session. In the North American session, spot gold is trading at $1243.89 per ounce, down 0.31% on the day. On the release front, US Final GDP for the first quarter was stronger than expected, with a gain of 1.4%. This was above the forecast of 1.2%. As well, unemployment claims rose slightly to 244 thousand, higher than the estimate of 241 thousand. Friday is busy, so traders should be prepared for movement in gold prices. The key release of the day is UoM Consumer Sentiment, with the markets braced for a reading of 94.5 points in May, compared to the previous reading of 97.1 points. As well, we’ll get a look at Chicago PMI and Personal Spending.

The US economy did indeed slow down in the first quarter, but there was some good news on Thursday, as the revised GDP reading was raised to 1.4%, better than the initial estimate of 1.2% in May. The improvement was attributed to stronger consumer spending and an increase in exports. Earlier in the year, the markets were braced for a very poor quarter, with the first estimate in April projecting a gain of only 0.7%. Will we see better numbers in the second quarter? That may be a tall order, as consumer spending and manufacturing numbers in Q2 have missed expectations. Housing numbers have been mixed, and inflation remains below the Fed’s target of 2 percent. At the same time, the US labor markets remains very tight, with the unemployment rate at a 16-year low of 4.3%.  Stronger global economic conditions have increased the demand for US products, boosting the export sector.

Aside from lukewarm economic data in 2017, investor confidence has been dampened by a Trump administration which has been plagued by scandals and crises. The administration continues to spend much of its time and energy on damage control, rather than focusing on its agenda of tax reform and increased fiscal spending. Will political paralysis in Washington affect interest rate policy? The Federal Reserve has all but promised one more rate hike in 2017, but the markets aren’t so sure, with the odds of a December rate hike at 57%, according to the CME Group. Gold prices are inversely linked to interest rate hikes, so if the odds of a rate hike decrease, gold could respond with gains.

XAU/USD Fundamentals

Thursday (June 29)

• 8:30 US Final GDP. Estimate 1.2%. Actual 1.4%
• 8:30 US Unemployment Claims. Estimate 241K. Actual 144K
• 8:30 US Final GDP Price Index. Estimate 2.2%. Actual 1.9%
• 10:30 US Natural Gas Storage. Estimate 50B. Actual 46B

Friday (June 30)

• 10:00 US Revised UoM Consumer Sentiment. Estimate 94.5

*All release times are EDT

*Key events are in bold

XAU/USD for Thursday, June 29, 2017

XAU/USD June 29 at 13:00 EST

Open: 1249.62 High: 1253.22 Low: 1239.78 Close: 1243.89

XAU/USD Technical

• XAU/USD edged higher in the Asian session but reversed directions and posted considerable gains in the European session. The pair has reversed directions and has edged higher in North American trade
• 1232 is providing support
• 1260 is the next resistance line
• Current range: 1232 to 1260

Further levels in both directions:

• Below: 1232, 1199 and 1170
• Above: 1260, 1285, 1307 and 1337

OANDA’s Open Positions Ratio

XAU/USD ratio has shown little movement this week. Currently, long positions have a majority (69%), indicative of XAU/USD reversing directions and climbing to higher levels. 

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