Gold Posts Gains as North Korea Tensions Continue

Gold prices are up on Tuesday. In the North American session, gold is trading at $1338.03, up 0.25% on the day. On the release front,  US Factory Orders in July declined 3.3%, matching the estimate. This marked the sharpest decline since August 2014. Federal Reserve member Lael Brainard spoke earlier in the day, and two other FOMC members, Neel Kashkari and Neel Kashkari, will be delivering remarks later in the day. On Wednesday, the US releases ISM Non-Manufacturing PMI, with an estimate of 55.5 points.

Geopolitical tensions often pushes up the price of gold, which is considered a safe-haven asset in times of trouble. This has been the case with the crisis in North Korea, which has lifted gold to 12-month highs. On Monday, North Korea’s announcement that it had exploded a hydrogen bomb which could be fitted to an intercontinental ballistic missile. Although the claim has yet to be verified by Western analysts, it is clear that this nuclear device test has ratcheted tensions between North Korea and the US, Japan and South Korea. The International Atomic Energy Authority responded by labeling North Korea as a ‘global threat’, and US President Trump announced on Tuesday that he would increase weapon sales to Japan and South Korea. As tensions between Washington and Pyongyang have increased, the drop in risk appetite is driving investors to safe-haven gold. If the crisis in the Korean peninsula worsens, we can expect gold to continue to rise, as nervous investors flock to the metal.

Last week’s disappointing US employment numbers wasn’t lost on the Federal Reserve, as FOMC member Leal Brainard sent out a pessimistic message on Tuesday. Brainard noted that inflation remained “well short” of the Fed’s target of 2%, and urged the Fed to act cautiously and resist raising interest rates until inflation moves higher. Brainard did acknowledge the rebound in the US economy, saying that the economy was on “solid footing”. A December rate hike remains very much in doubt, with odds of an increase at just 30%. With the likelihood of a rate hike pegged at less than 2% at next week’s policy meeting, the markets will be focusing on the Fed’s balance sheet, which stands at $4.2 trillion. Earlier in the year, the Fed outlined plans to reduce the balance sheet, and analysts expect further details at the September meeting.

XAU/USD Fundamentals

Tuesday (September 5)

• 8:00 US FOMC Member Lael Brainard Speaks
• 10:00 US Factory Orders. Estimate -3.3%. Actual -3.3%
• 10:00 US IBD/TIPP Economic Optimism. Estimate 53.1 
• 13:10 US FMOC Neel Kashkari Speaks
• 18:05 US FMOC Member Robert Kaplan Speaks

Wednesday (September 6)

• 10:00 US ISM Non-Manufacturing PMI. Estimate 55.5

*All release times are GMT

*Key events are in bold

XAU/USD for Tuesday, September 5, 2017

XAU/USD September 5 at 12:35 EST

Open: 1334.59 High: 1338.70 Low: 1326.27 Close: 1337.34

XAU/USD Technical

• XAU/USD posted gains in the Asian session. The pair recorded small gains in the European session but then retracted. XAU/USD has been flat in North American trade
• 1307 is providing support
• 1337 is under strong pressure in resistance and could break in the North American session
• Current range: 1307 to 1337

Further levels in both directions:

• Below: 1307, 1285, 1260 and 1232
• Above: 1337, 1367 and 1392

OANDA’s Open Positions Ratio

XAU/USD ratio is unchanged in the Tuesday session. Currently, short and long positions are evenly split, indicative of a lack of trader bias as to what direction XAU/USD will take next. 

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