Gold Steady as CPI Matches Forecast, Markets Eye Fed Rate Decision

Gold has posted slight gains on Tuesday, as the base metal trades at $1066.09 per ounce in the North American session. In economic news, US Core CPI posted a gain of 0.2% and CPI came in at 0.0%, as both reports matched their estimates. As well, the Empire State Manufacturing Index posted a fifth consecutive decline, coming in at -4.6 points. All eyes are on the Federal Reserve policy meeting on Wednesday, with the Fed expected to raise interest rates for the first time in almost 10 years.

There were no surprises from US consumer inflation numbers on Tuesday. Core CPI, which is carefully monitored by the Federal Reserve, remained at 0.2% for a third straight month. CPI dipped to 0.0%, down from 0.2% in November. Both indicators matched their forecasts, so these readings are unlikely to make any waves in the markets. More importantly, these numbers, although pointing to a weak inflation picture in the US, are unlikely to deter the Fed from a widely expected rate hike on Wednesday.

Commodity investors remain on the sidelines, waiting for the upcoming crucial Fed meeting which could prove to be the economic release of the year. The Fed will conclude a two-day policy meeting on Wednesday and all indications are that the Fed will raise rates by 0.25%, to be followed by further rate hikes in 2016. The Fed last raised rates back in June 2006, and Fed chief Janet Yellen and other policymakers have sent broad signals to the markets that the US central bank if finally ready to press the rate trigger. The US economy is close to full employment, and Yellen recently stated that she was not concerned about persistently low inflation. How the commodity markets will react to a rate hike is of course, the million dollar question. Given that the markets have had ample time to price in this event, volatility in gold prices could be limited. At the same time, even a small rate increase represents a huge shift in the Fed’s monetary policy, which could help boost the US dollar.

XAU/USD Fundamentals

Tuesday (Dec. 15)

• 13:30 US CPI. Estimate 0.0%
• 13:30 US Core CPI. Estimate 0.2%
• 13:30 Empire State Manufacturing Index. Estimate -5.7 points. Actual -4.6 points
• 15:00 US NAHB Housing Market Index. Estimate 63 points
• 21:00 US TIC Long-Term Purchases. Estimate 32.4B

Upcoming Key Events

Wednesday (Dec. 16)

• 13:30 US Building Permits. Estimate 1.16M
• 19:00 US FOMC Economic Projections
• 19:00 US FOMC Statement
• 19:00 US Federal Funds Rate. Estimate <0.50%
• 19:30 US FOMC Press Conference

*Key releases are highlighted in bold

*All release times are GMT

XAU/USD for Tuesday, December 15, 2015

XAU/USD December 15 at 13:30 GMT

XAU/USD 1065.46 H: 1068 L: 1058

XAU/USD Technical

• XAU/USD posted losses in the Asian session. The pair improved in the European session, but has continued moving downward in North American trade.
•  1080 is providing resistance
• 1043 is the next support level
• 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 is showing little movement, as long positions continue to command a solid majority (71%). This is indicative of strong trader bias towards gold prices reversing directions and moving to higher levels.

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.