Gold Rally Continues, Markets Eye Fed Minutes

Gold has posted gains on Tuesday, as the base metal trades at $1078.60 per ounce in the North American session. On the release front, there is just one minor release on the schedule, Total Vehicle Sales. On Wednesday, the US will release the FOMC minutes of its December policy meeting and we’ll also get a look at ADP Nonfarm Payrolls. The markets will be paying close attention to both of these market-movers, and we could see some volatility in the markets after these key releases.

It’s been a golden start for 2016, with the metal posting impressive gains of 1.7% since the start of the week. Investors have been snapping up gold, traditionally considered a safe-haven commodity. This was in response to the release earlier this week of weak Chinese manufacturing data, which has underscored the slowdown affecting the world’s second largest economy. Chinese Caixin Manufacturing PMI, a key indicator, slipped to 48.2 points in December, short of the forecast of 48.9 points. The index managed to break above the 50-point level only once in 2015, pointing to ongoing contraction in the Chinese manufacturing sector. As well, another crisis in the Middle East may be brewing, as Saudi Arabia abruptly cut off relations with Iran following the execution of a Saudi cleric which led to the ransacking of the Saudi embassy in Tehran. Geopolitical tensions often push up the price as gold, as nervous investors opt for safety over risk.

The US economy heads into 2016 in good shape and received a crucial vote of confidence from the Federal Reserve, which raised interest rates just before the end of the year. At the same time, certain sectors have lagged behind the recovery, such as the manufacturing industry. Recent manufacturing releases have missed expectations, and the negative trend continued on Monday. ISM Manufacturing PMI, a key indicator, slipped to 48.2 points, well short of the forecast of 49.1 points. This weak reading is raising concerns, since it marks back-to back releases below the 50-point level, which separates expansion from contraction. It is also the sixth consecutive month that the PMI has softened. As well, ISM Manufacturing Prices dipped to 33.5 points, well below expectations.

XAU/USD Fundamentals

Tuesday (Jan. 5)

• All Day – US Total Vehicle Sales. Estimate 18.1M

*All release times are GMT

*Key Events are in bold

XAU/USD for Tuesday, January 5, 2016

XAU/USD January 5 at 17:00 GMT

XAU/USD 1078.60 H: 1081.50 L: 1072.60

XAU/USD Technical

• XAU/USD posted gains in the Asian and  European sessions, but has retracted in North American trading.
• There is weak resistance at 1080. This line was tested earlier in the day and could break during the North American session.
• 1043 is providing strong support
• Current range: 1043 to 1080

Further levels in both directions:

• Below: 1043, 1024 and 980
• Above: 1080, 1098, 1134 and 1151

OANDA’s Open Positions Ratio

XAU/USD ratio remains unchanged. Long positions continue to command a solid majority (74%), indicative of strong trader bias towards gold prices continuing to move higher.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.