Gold Posts Slight Gains as Catalonia Crisis Continues

Gold prices continue to head higher this week, as the metal has posted considerable gains on Wednesday. In the North American session, the spot price for an ounce of gold is $1289.65, up 0.24% on the day. There are no major US releases on the schedule. On Thursday, the US releases PPI and unemployment claims.

All eyes remain on Spain, after Catalan President Carles Puigdemont declared independence on Tuesday, but then qualified the move by suspending any formal secession moves. Puigdemont announced that he is open to dialogue with the Spanish government, but Madrid continues to take a hard line against the Catalan leader. On Wednesday the Spanish government demanded that Puigdemont clarify if he had indeed declared independence. Madrid is reportedly considering imposing Article 155 of Spain’s constitution, which would allow the government to suspend the Catalan government and hold new elections. This “nuclear option” could mark a steep escalation in the constitutional crisis. Although Catalan leaders say they have a mandate for independence based on the referendum (in which 90% voted for independence), Catalans are deeply divided over the issue. Several banks and major companies have announced they will move their legal headquarters from Barcelona to Madrid, and the constitutional crisis could take a toll on the Spanish economy if the stalemate continues.

The markets are keeping a close eye on the Federal Reserve, which will release its minutes from the September meeting. At the meeting, the Fed did not raise interest rates but did announce it would begin trimming its $4.2 billion balance sheet in October. This is seen as a vote of confidence in the US economy, which continues to show strong growth. At time of the September meeting, the odds of December rate hike were pegged around 50 percent. However, the odds have urged to 87 percent. The primary reason for the huge shift in market sentiment can be attributed to Fed policymakers coming out in support of a rate hike, notably Fed Chair Janet Yellen. The lack of inflation remains the most significant impediment to raising rates, but Yellen and other FOMC members have insisted that strong economic conditions will lead to higher inflation levels. Even if inflation does not move higher before 2018, the Fed now appears ready to raise rates for a third and final time this year.

XAU/USD Fundamentals

Wednesday (October 11)

• 10:00 US JOLTS Job Openings. Estimate 6.13M
• 13:01 US 10-year Bond Auction
• 14:00 US FOMC Minutes

Thursday (October 12)

• 8:30 US PPI. Estimate 0.4%
• 8:00 US Unemployment Claims. Estimate 251K

*All release times are GMT

*Key events are in bold

XAU/USD for Wednesday, October 11, 2017

XAU/USD October 11 at 9:00 EST

Open: 1286.65 High: 1291.50 Low: 1286.56 Close: 1289.65

XAU/USD Technical

• XAU/USD showed little movement in the Asian session and edged upwards in European trade
• 1285 is providing support
• 1307 is the next resistance line
• Current range: 1285 to 1307

Further levels in both directions:

• Below: 1285, 1260, 1240 and 1213
• Above: 1307, 1337 and 1367

OANDA’s Open Positions Ratio

XAU/USD ratio is almost unchanged this week. Currently, long positions have a majority (69%), indicative of trader bias towards XAU/USD continuing to move to higher ground.

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