Gold Improves on Catalonia Crisis, US-Turkey Spat

Gold prices continue to head higher this week, as the metal has posted considerable gains on Tuesday. In the North American session, the spot price for an ounce of gold is $1291.43, up 0.59% on the day. There are no major US releases on the schedule.

The Catalan constitutional crisis has shaken up Spain, and it remains unclear whether Catalan President Carles Puigdemont will unilaterally declare independence from Spain. Catalonians voted in favor of independence, but the national government has refused to negotiate with the Puigdemont about session. On Sunday, a demonstration against the referendum attracted some 350,000 people, in a show of support for the Spanish government. If Puigdemont declares independence, Spanish Prime Minister Mariano Rajo has promised to take drastic action, which could include dissolving the Catalan parliament and even arresting lawmakers. Investors are casting a nervous eye on the economic ramifications of the crisis, which has been good news for gold. Two major banks, Caixabank and Sabadell, as well as several large corporations have announced they are relocating their legal headquarters from Barcelona to Madrid. The tensions have not affected the euro so far, but that could change if Catalonia defies Madrid and declares independence.

Turkish President Tayyip Erdoğan once promised a “no enemies” foreign policy, but Erdogan would be more hard-pressed to name some allies. The maverick Turkish leader now finds himself in a spat with none other than President Trump, after Turkey arrested a Turkish national at the US consulate in Istanbul. The US responded by suspending visa services, and Turkey has responded in kind, suspending visas for US citizens. The Turkish lire and Turkish stock markets have fallen, and nervous investors have responded by buying safe-haven gold.

The Federal Reserve stayed on the sidelines at its September policy meeting, but the markets are clearly expecting one final rate hike in December. According to CME FedWatch, the odds of a December rate hike are currently at 86%, compared to just 31% a month ago. Why the huge turnaround? A strong US economy has helped raise the odds, but the primary reason for the huge shift in market sentiment can be attributed to the Fed policymakers that have come 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 press the rate trigger.

XAU/USD Fundamentals

Tuesday (October 10)

• 6:00 US NFIB Small Business Index. Estimate 105.1. Actual 103.0
• 8:00 British NIESR GDP Estimate. Actual 0.4%
• 10:00 US FOMC Member Neel Kashkari Speaks
• 10:00 US IBD/TIPP Economic Optimism. Estimate 54.2. Actual 50.3
• 19:50 US Core Machinery Orders. Estimate 0.9%
• 20:00 US FOMC Member Robert Kaplan Speaks

*All release times are GMT

*Key events are in bold

XAU/USD for Tuesday, October 10, 2017

XAU/USD October 10 at 12:00 EST

Open: 1283.97 High: 1294.31 Low: 1282.21 Close: 1291.46

XAU/USD Technical

• XAU/USD edged higher in the Asian and European sessions. The pair continues to gain ground in North American trade
• 1285 has switched to a support role following gains by XAU/USD on Tuesday
• 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 is unchanged in the Tuesday session. Currently, long positions have a majority (70%), indicative of trader bias towards XAU/USD continuing to move to higher ground.

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