XAU/USD – Gold Breaks Below $1130 as Slide Continues

Gold has posted losses in the Tuesday session. In North American trade, the spot price for one ounce stands at $1129.75. On the release front, it continues to be a quiet week, with no events on the schedule.

It’s been a rough ride for gold, which has plunged some 11.4 percent since November 7. Gold had a losing week for the sixth straight time, as the US dollar was buoyed by the Federal Reserve’s quarter-point rate hike, bringing the benchmark rate to 0.50 percent. The base metal fell as low as $1122 last week, marking its lowest level since February. With the Fed projecting up to four rate hikes in 2017, gold prices could continue to head downwards.

When the Federal Reserve raised interest rates in December 2015, the Fed confidently predicted a series of rate hikes in 2016 in order to keep a hot US economy in check. However, the Fed remained on the sidelines throughout 2016 and refrained from any rate hikes until last week. There were several false starts along the way, as expectations that the Fed would raise rates earlier in 2016 failed to materialize. This led to sharp criticism of Janet Yellen for failing to provide a clear monetary policy. Yellen seems to have been keenly aware of this, as the Fed did everything short of buying advertisements in daily newspapers to get out the message that it planned to raise rates in December. Indeed, a rate hike was priced in as high as 100% by some analysts. Yellen should certainly be commended for a clear message to the markets.

With the one rate hike in 2016 behind us, what’s next for Janet Yellen & Co.? In September, Fed officials said they expected two rate hikes in 2017, but the Fed is now projecting three or even four hikes next year. However, projections need to be adjusted to economic conditions, and the markets will understandably be somewhat skeptical about Fed rate forecasts. As well, the wild card of Donald Trump could also play a critical role in monetary policy. Trump’s economic platform remains sketchy, apart from declarations that he will increase government spending and cut taxes. Still, there is growing talk about ‘Trumpflation’, with the markets predicting that Trump’s policies will increase inflation levels, which have been persistently weak. If inflation levels do heat up, there will be pressure on the Fed to step in and raise interest rates.

XAU/USD Fundamentals

Tuesday (December 20)

• There are no US releases on the schedule

*All release times are EST

*Key events are in bold

XAU/USD for Tuesday, December 20, 2016

XAU/USD December 20 at 11:40 EST

Open: 1138.61 High: 1139.79 Low: 1125.75 Close: 1129.75

XAU/USD Technical

• XAU/USD showed little movement in the Asian session. The pair posted slight losses in the European session but has steadied in North American trade
• 1111 is providing support
• 1130 has switched to a resistance role following losses by XAU/USD in the Tuesday session
• Current range: 1111 to 1130

Further levels in both directions:

• Below: 1111, 1076 and 1043
• Above: 1130, 1146, 1174 and 1199

OANDA’s Open Positions Ratio

In the Tuesday session, XAU/USD ratio is unchanged. Currently, long positions command a substantial majority (76%). This is indicative of trader bias towards XAU/USD reversing directions and climbing to higher levels.

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