Gold Shows Gains Ahead of Federal Reserve Statement

Gold has edged higher on Wednesday, as the metal trades at a spot price of $1326.45 per ounce in the North American session. On the release front, US economic indicators disappointed, as Core Durable Goods Orders and Durable Goods Orders both posted declines. As well, Pending Homes Sales posted a small gain of 0.2%, well below expectations. Later in the day, the Federal Reserve will conclude its meeting and issue a policy statement. On Thursday, the US will release Unemployment Claims.

We could see some volatility in gold prices ahead of policy statements from the Federal Reserve and Bank of Japan. The Fed is not expected to raise the current benchmark rate of 0.25%, so the markets will be paying close attention to the policy statement, looking for clues about a possible hike later in the year. The markets have priced in a 51% chance of a rate hike before the end of the year, but that could quickly dip if the Fed sends a dovish message to the markets. The previous policy statement preceded the Brexit vote by just a week, so it will be interesting to see what Fed policymakers have to say about the British decision to leave the European Union. Solid US numbers in the past few weeks has fueled speculation about a possible rate hike, although it’s extremely unlikely the Fed will make a move at the Wednesday meeting. Although the US economy is in good shape, the fly in the ointment is inflation, which remains stuck at low levels, well short of the Fed’s target of around 2 percent. Fed policymakers will be hesitant to raise rates if inflation is not projected to point upwards.

US numbers have been solid in recent weeks, so Wednesday’s soft durable goods reports caught the markets by surprise. Core Durable Goods Orders came in at -0.5%, well short of the forecast of 0.3%. There was no relief from Durable Goods Orders, which posted a sharp gain of 4.0%, compared to a forecast of -1.1%. This marked the weakest reading of 2016. There was more disappointing news on the housing front, as Pending Home Sales gained 0.2%, well short of the estimate of 1.9%.

The BoJ has been under strong pressure to adopt further easing steps, but does it have any monetary ammunition left? Interest rates are already down to zero, and the economy continues to struggle with deflation. Other options available to the bank include expanding quantity or quality easing. The BoJ will issue a policy statement late Thursday, and it remains unclear if the bank will adopt further easing measures.

XAU/USD Fundamentals

Wednesday (July 27)

• 8:30 US Core Durable Goods Orders. Estimate 0.3%. Actual -0.5%
• 8:30 US Durable Goods Orders. Estimate -1.1%. Actual -4.0%
• 10:00 US Pending Home Sales. Estimate 1.9%. Actual 0.2%
• 10:30 US Crude Oil Inventories. Estimate -2.1M. Actual +1.7M
• 14:00 US FOMC Statement
• 14:00 US Federal Funds Rate. Estimate <0.50%

Upcoming Key Events

Thursday (July 28)

• 8:30 US Unemployment Claims. Estimate 261K

*Key releases are highlighted in bold

*All release times are EDT

XAU/USD for Wednesday, July 27, 2016

XAU/USD July 27 at 12:30 EDT

Open: 1319.05 High: 1329.41 Low: 1315.76 Close: 1326.45

XAU/USD Technical

• XAU/USD was flat in the Asian and European sessions. The pair has posted gains in North American trade.
• There is weak resistance at 1331
• 1307 is providing support
• Current range: 1307 to 1331

Further levels in both directions:

• Below: 1307, 1279 and 1255
• Above: 1331, 1361, 1388 and 1416

OANDA’s Open Positions Ratio

On Monday, XAU/USD ratio is showing little change on Wednesday, consistent with the lack of significant movement from XAU/USD. Long positions have a strong majority (70%), indicative of trader bias towards XAU/USD continuing to move higher. 

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.