XAU/USD – Gold Steadies After Another Disappointing Week

Gold has started the week with slight gains. In North American trade, the spot price for one ounce is $1140.25. On the release front, there are no major US events on the schedule. Flash Services PMI slipped to 53.4, short of the forecast of 55.2. This points to weaker growth in the services sector than expected. Federal Reserve Chair Janet Yellen will deliver remarks at an event in Baltimore.

It’s been a rough and bumpy 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.

Federal Reserve Chair Janet Yellen has worked hard at improving transparency with the markets, and the Fed deserves full marks for getting out the message of a December rate hike. This marked the first rise since December 2015 and only the second rate hike since 2008. In its rate statement, the Fed sounded positive about the economy, noting that the “labor market has continued to strengthen and that economic activity has been expanding at a moderate pace since mid-year“. As well, the Fed revised upwards its forecast of US economic growth to 1.9% in 2016 and 2.1% in 2017, slightly higher than the Fed’s September estimates.

With the one rate hike in 2016 behind us, what’s next for the Fed? 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 can change based on economic conditions, and the markets haven’t forgotten that after the hike in December 2015, the Fed said it expected to raise rates four times in 2015, but ended up raising rates only once. 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. If Trump’s economic policies heat up the economy and boost inflation, we can expect a series of rate hikes starting early next year.

XAU/USD Fundamentals

Monday (December 19)

• 9:45 US Flash Services PMI. Estimate 55.2. Actual 53.4
• 18:30 Federal Reserve Chair Janet Yellen Speech

*All release times are EST

*Key events are in bold

XAU/USD for Monday, December 19, 2016

XAU/USD December 19 at 12:15 EST

Open: 1136.07 High: 1143.43 Low: 1155.53 Close: 1140.25

XAU/USD Technical

• XAU/USD posted slight gains in the Asian session. The pair has shown limited movement in the European and North American sessions
• 1130 is providing support
• 1146 is a weak resistance line
• Current range: 1130 to 1146

Further levels in both directions:

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

OANDA’s Open Positions Ratio

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

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