XAU/USD – Gold Steady Ahead of Expected Rate Hike

Gold prices have edged higher in the Tuesday session. In North American trade, the spot price for an ounce of gold is $1159.40. On the release front, there are no major events on the schedule. On Wednesday, the Fed concludes its monthly policy meeting and the US will release key retail sales numbers.

Gold has recorded weekly losses for five straight weeks and the metal is currently trading at its lowest level since early February. The downward trend could continue, with the Fed likely to raise interest rates on Wednesday. Gold, which pays no interest, moves inversely with interest rate movement, as higher rates make the US dollar more attractive to investors. Traders should be prepared for possible volatility from gold on Wednesday.

All eyes are on the Federal Reserve, which meets for a crucial policy meeting on Wednesday. The markets have priced in a rate hike at 95 percent, most likely a quarter-point increase. This would mark the first hike by the Fed since last December, and anticipation of a hike has translated into strong gains for the greenback.  Even though the rate hike has been expected (and priced in) for some time, such a momentous move could boost the greenback following a rate hike. What can we expect from the Fed after the hike? The Fed has indicated that it plans to raise rates gradually in 2017. However, this could change, given Trump’s declarations to increase government spending and cut taxes, which could lead to higher inflation levels. Once the new administration’s economic policies become clearer, the Fed may send signals to the markets as to its rate plans in early 2017.

XAU/USD Fundamentals

Tuesday (December 13)

• 13:01 US 10-year Bond Auction
• 14:00 US Federal Budget Balance. Estimate -99.5B

Upcoming Key Events

Wednesday (December 14)

• 8:30 US Core Retail Sales. Estimate 0.4%
• 8:30 US PPI. Estimate 0.1%
• 8:30 US Retail Sales. Estimate 0.3%
• 14:00 US FOMC Economic Projections
• 14:00 US FOMC Statement
• 14:00 US Federal Funds Rate. Estimate <0.75%
• 14:30 US FOMC Press Conference

*All release times are EST

*Key events are in bold

XAU/USD for Tuesday, December 13, 2016

XAU/USD December 13 at 11:45 EST

Open: 1156.71 High: 1163.05 Low: 1154.58 Close: 1157.40

XAU/USD Technical

• XAU/USD has showed limited movement in the Asian and European sessions. The pair has been choppy in North American trade
• 1146 is providing support
• 1174 is the next resistance line
• Current range: 1146 to 1174

Further levels in both directions:

• Below: 1146, 1130 and 1111
• Above: 1176, 1205, 1223 and 1245

OANDA’s Open Positions Ratio

XAU/USD ratio is showing slight gains in short positions. Currently, long positions command a substantial majority (75%). This is indicative of trader bias towards XAU/USD breaking out and moving to higher levels.

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