Gold Drops to 4-Week Low on Strong Durable Goods Report

Gold has posted losses on Wednesday, continuing the downward trend move which marked the Tuesday session. In North American trade, the spot price for an ounce of gold is $1285.39, down 0.58% on the day. Gold has now slipped 1.9 percent since Tuesday, and is currently trading at its lowest level since August 25. On the release front, key indicators were mixed. Durable Good Orders sparkled with a 1.7% gain, well above the estimate of 1.0%. Core Durable Goods slowed to 0.2%, matching the estimate. Pending Home Sales was unexpectedly soft, posting a decline of 2.5%, compared to an estimate of -0.5%. The US will release two key events – Final GDP and unemployment claims.

What can we expect from the Federal Reserve with regard to interest rate policy? Fed policymakers remain divided on the hot issue of a third and final rate hike in 2017. Fed Chair Janet Yellen waded into the rate debate on Tuesday, as she sent out a surprisingly hawkish message to the markets. Yellen said that she favored gradual rate increases, and voiced confidence that inflation levels would move higher. She added that if the Federal Reserve did not continue to raise rates, the red-hot labor market could become overheated, potentially causing a recession. Yellen appeared to echo sentiments voiced by New York Fed President William Dudley, who made a strong case for raising rates on Monday. Dudley cited a soft US dollar and strong global growth as reasons why inflation would increase and also translate into stronger wage growth. Dudley said he expects inflation to reach the Fed’s target of 2 percent in the “medium term”, and predicted that the Fed would continue to gradually remove monetary accommodation. However, Chicago Fed President Charles Evans sent out a very different message, calling on the Fed to avoid another rate hike until wage and inflation levels moved higher. Evans said that inflation, which is running at around 1.4 percent, is too low, and wants to see “clear signs” that prices are moving higher before the Fed presses the rate trigger. For their part, the markets are more confident in a December move – the CME Group has pegged the odds of a December raise at 81%, while the odds were mired below 50% just a few weeks ago.

At last week’s policy meeting, the Fed stayed on the sidelines and maintained the benchmark rate at 1.25%. There was dramatic news, however, as the Fed made its long-awaited announcement that it would reduce its $4.2 trillion balance sheet by $50 billion/mth, starting in October. Commenting on the decision to taper the balance sheet, FOMC member John Williams said last week that he did not “anticipate any sudden or large effects on rates or spreads”, but acknowledged that the Fed could not predict how the markets would react, and policymakers would have to monitor market reaction to the reduction in the balance sheet. The reduction in the balance sheet can be viewed as a mini-rate hike, so if the Fed sticks to its plan of monthly tapers, the US dollar could gain ground against its major rivals.

XAU/USD Fundamentals

• 8:30 US Core Durable Goods Orders. Estimate 0.2%. Actual 0.2%
• 8:30 US Durable Goods Orders. Estimate 1.0%. Actual 1.7%
• 10:00 US Pending Home Sales. Estimate -0.5%. Actual -2.6%
• 10:30 US Crude Oil Inventories. Estimate +2.9M Actual -1.8M
• 14:00 US FOMC Member Lael Brainard Speaks

Thursday (September 28)

• 8:30 US Final GDP. Estimate 3.0%
• 8:30 US Unemployment Claims. Estimate 269K

*All release times are GMT

*Key events are in bold

XAU/USD for Wednesday, September 27, 2017

XAU/USD September 27 at 12:05 EST

Open: 1292.10 High: 1296.09 Low: 1282.40 Close: 1285.39

XAU/USD Technical

• XAU/USD was flat in the Asian session. The pair lost edged lower in the European session and continues to lose ground in North American trade
• 1285 was tested earlier in support and is under pressure
• 1307 is the next resistance line
• Current range: 1285 to 1307

Further levels in both directions:

• Below: 1285, 1260 and 1240
• Above: 1307, 1337, 1367 and 1392

OANDA’s Open Positions Ratio

XAU/USD is showing slight movement towards long positions. Currently, long positions have a majority (57%), indicative of trader bias towards XAU/USD reversing directions and moving to higher ground. 

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