Gold Ticks Lower as Markets Eye Federal Reserve Statement

Gold has edged lower in the Wednesday session. In North American trade, spot gold is trading at $1248.46, down 0.18% on the day. On the release front, New Home Sales was unchanged at 610 thousand, short of the estimate of 615 thousand. Later in the day, the Federal Reserve releases its rate statement and is expected to maintain the benchmark at 1.25%. On Thursday, the US will release two key indicators – Unemployment Claims and Core Durable Goods Orders.

The Federal Reserve is unlikely to make a rate move at its policy meeting later on Wednesday. So what can we expect to hear from the Fed? The rate statement will be under careful scrutiny, as analysts will be looking for any references to the “I” word. Inflation continues to hover around 1.4% (based on the Fed’s calculations), well below the Fed target of 2%. In June, Janet Yellen described low inflation as “transitory”, and policymakers sent broad hints about a December rate hike. However, recent comments from Yellen and other policymakers have shifted in tone, an apparent acknowledgment that inflation may remain stuck at low levels. This has raised doubts as to whether the Fed will indeed raise rates one more time this year. No move is expected before December, and the odds of a December hike have fallen to just 37%, according to the CME Group. If today’s rate statement fails to reassure the markets that a December hike is planned, investors could respond by selling dollar-denominated assets in favor of other currencies or gold.

Another key issue on the Fed’s agenda is when to begin tapering the Fed’s $4.2 trillion bond portfolio. The bloated balance sheet is a result of the aggressive quantitative easing program which was put in place after the financial crisis in 2008. In June, the Fed outlined plans to taper purchases, with experts circling September as the start date of the reduction. This would involve the Fed tapering the purchases of Treasury bonds and mortgage securities, with an initial taper likely of $10 billion/month. Analysts expect the taper to begin in September, so we could see the Fed make reference to this in the July statement.

USD/XAU Fundamentals

Wednesday (July 26)

• 10:00 US New Home Sales. Estimate 615K. Actual 610K
• 10:30 US Crude Oil Inventories. Estimate -3.3M. Actual -7.2M
• 14:00 US FOMC Statement
• 14:00 US Federal Funds Rate. Estimate <1.25%

Thursday (July 27)

• 8:30 US Core Durable Goods Orders. Estimate 0.4%
• 8:30 US Unemployment Claims. Estimate 240K

*All release times are EDT

*Key events are in bold

XAU/USD for Wednesday, July 26, 2017

XAU/USD July 26 at 12:35 EST

Open: 1246.76 High: 1249.52 Low: 1243.75 Close: 1248.46

XAU/USD Technical

• XAU/USD edged lower in the Asian session. The pair has posted small gains in the European and North American sessions
• 1232 is providing support
• 1260 is the next resistance line
• Current range: 1232 to 1260

Further levels in both directions:

• Below: 1232, 1199, 1170 and 1146
• Above: 1260, 1285 and 1307

OANDA’s Open Positions Ratio

XAU/USD ratio is unchanged in the Wednesday session. Currently, long positions have a majority (65%), indicative of XAU/USD continuing to move higher.

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