Gold Pauses as Markets Digest N. Korea Tensions, Dovish Fed Stance

Gold is showing little movement in the Wednesday session, after considerable gains on Tuesday. In the North American session, gold is trading at $1337.87, down 0.13% on the day. On the release front, today’s major event was ISM Non-Manufacturing PMI. The indicator improved to 55.3, but this was short of the forecast of 55.8 points. On Thursday, the US releases employment claims.

The most recent crisis over North Korea has triggered sharp gains in gold prices, as less risk appetite has led to investors snapping up safe-haven gold. On Tuesday, gold touched a high of $1344.39, its highest level since September 2016. The week began with North Korea announcing that it had tested a hydrogen bomb which could be used in a missile strike. US President Trump responded by announcing that he would increase weapon sales to Japan and South Korea and on Wednesday, South Korea’s President Moon Jae-in warned that the situation risked becoming “uncontrollable”. As tensions between Washington and Pyongyang have increased, the US dollar has lost ground to safe-haven assets such as gold. If the situation continues to deteriorate, traders can expect gold prices to continue to climb.

There has been increasing speculation that the Federal Reserve will stay on the sidelines and not raise interest rates until 2018. Last week’s soft employment numbers have only reinforced that sentiment. On Tuesday, FOMC member Leal Brainard weighed in on interest rate policy. Brainard noted that inflation remained “well short” of the Fed’s target of 2%, and urged the Fed to act cautiously and resist raising interest rates until inflation moves higher. Brainard did acknowledge the rebound in the US economy, saying that the economy was on “solid footing”. A December rate hike remains very much in doubt, with odds of an increase at just 30%. With the likelihood of a rate hike pegged at less than 2% at next week’s policy meeting, the markets will be focusing on the Fed’s balance sheet, which stands at $4.2 trillion. Earlier in the year, the Fed outlined plans to reduce the balance sheet, and analysts expect further details at the September meeting.

XAU/USD Fundamentals

Wednesday (September 6)

• 8:30 US Trade Balance. Estimate -44.6B. Actual -43.7B
• 9:45 US Final Services PMI. Estimate 56.8. Actual 56.0
• 10:00 US ISM Non-Manufacturing PMI. Estimate 55.8. Actual 55.3
• 14:00 US Beige Book

Upcoming Key Events

Thursday (September 7)

• 8:30 US Unemployment Claims. Estimate 245K

*All release times are GMT

*Key events are in bold

XAU/USD for Wednesday, September 6, 2017

XAU/USD September 6 at 12:40 EST

Open: 1339.68 High: 1342.50 Low: 1335.82 Close: 1337.87

XAU/USD Technical

• XAU/USD posted edged higher in the Asian session but then retracted. The pair has shown little movement in the European and North American sessions
• 1337 is a fluid line. It was tested earlier in support and could break in the North American session
• 1367 is the next resistance line
• Current range: 1337 to 1367

Further levels in both directions:

• Below: 1337, 1307, 1285 and 1260
• Above: 1367, 1392 and 1416

OANDA’s Open Positions Ratio

XAU/USD ratio is unchanged this week. Currently, short and long positions are evenly split, indicative of a lack of trader bias as to what direction XAU/USD will take next. 

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