Gold Unchanged After Cautious Fed Minutes, Revised GDP Next

Gold is almost unchanged in the Thursday session. In North American trade, spot gold is trading at $1256.43 an ounce. On the release front, today’s highlight was unemployment claims, which edged up to 234 thousand, lower than the estimate of 238 thousand. On Friday, the US releases Preliminary GDP for the first quarter, which is expected at 0.9%. The initial GDP release in April posted a gain of 0.7%. As well, the US releases Core Durable Goods Orders and UoM Consumer Sentiment. Leaders of the G-7 countries will hold a summit in Sicily, with the backdrop of the Manchester terror attack just a few days ago.

The Federal Reserve’s minutes from the May policy meeting were closely watched by the markets, but gold has showed little reaction to the release. Traders hoping for confirmation of a June rate hike came away disappointed, as the minutes conveyed a less hawkish tone than the markets had expected. Policymakers were careful in their message, saying that a rate hike was coming “soon”. Does that mean a move at the June policy meeting? The markets clearly expect a rate hike, as Fed funds futures for a June increase remained at 78% after the minutes were released. At the same time, the Fed has given itself some wiggle room, and could opt to delay a hike until the second quarter if inflation or consumer indicators take an unexpected nosedive. The minutes stated that policymakers wanted to see additional evidence that the recent slowdown in the economy was temporary before raising rates. As for additional hikes in 2017, the markets remain skeptical. The odds for a September rate stand at just 37%. This pessimism is a result of a weak performance from the US economy in Q1, as well as doubts that President Trump, who is facing congressional investigations over his connections with the Russian government, will be able to pass his agenda of cutting taxes and government spending. Gone are the heady days at the end of 2016, when a red-hot US economy had analysts predicting four rate hikes in 2017. At the same time, a strong improvement in economic data could quickly change the cautious tone of the Fed and revive discussion of four rate hikes this year.

The White House sent President Trump’s 2018 budget proposal to lawmakers in Congress this week, where it is sure to get a chilly reception. Trump has promised to slash government spending, and much of the funds for the budget would come from huge cuts to the Medicaid health program and food stamps. The budget proposes slashing more than $600 billion from Medicaid and over $192 billion from food stamps over a decade. Trump has promised to balance the budget within 10 years, claiming this can be achieved through tax cuts and annual growth of 3 percent. However, experts are at odds as to whether the economy can reach and maintain such levels of growth, which is much higher than current economic expansion. The budget proposal is unlikely to remain in its present form for very long on Capitol Hill. Democrats will want nothing to do with it, and Republicans will not want to make drastic cuts to federal programs that will incur the wrath of voters. Still, the Trump administration, which has been in damage-control mode for weeks over the firing of FBI director James Comey, can point to the budget as a step forward in trying to implement Trump’s pro-business agenda.

XAU/USD Fundamentals

Thursday (May 25)

• 8:30 US Unemployment Claims. Estimate 238K. Actual 234K
• 8:30 US Goods Trade Balance. Estimate -64.7B. Actual -67.6B
• 8:30 US Preliminary Wholesale Inventories. Estimate 0.2%. Actual -0.3%
• 10:00 FOMC Member Lael Brainard Speaks
• 10:30 US Natural Gas Storage. Estimate 72B. Actual 75B

Friday (May 26)

• Day 1 – G7 Meetings
• 8:30 US Core Durable Goods Orders. Estimate 0.4%
• 8:30 US Preliminary GDP. Estimate 0.9%
• 10:00 US Revised UoM Consumer Sentiment. Estimate 97.6

*All release times are EDT

*Key events are in bold

XAU/USD for Thursday, May 25, 2017

XAU/USD May 25 at 13:20 EST

Open: 1257.51 High: 1259.26 Low: 1253.73 Close: 1256.43

XAU/USD Technical

• XAU/USD has showed little movement in the Thursday session
• 1232 is providing support
• 1260 was tested earlier in resistance and is a weak line
• Current range: 1232 to 1260

Further levels in both directions:

• Below: 1232, 1199, 1175 and 1146
• Above: 1260, 1285, 1307 and 1337

OANDA’s Open Positions Ratio

XAU/USD ratio is almost unchanged in the Thursday session. Currently, long positions have a strong majority (63%), indicative of trader bias towards XAU/USD breaking out and moving upwards. 

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