Gold Sharply Higher as Markets Brace for Dovish Fed Statement

Gold prices have jumped on Wednesday, as the spot prices per ounce stands at $1180 early in the North American session. The markets are keeping a close eye on the key event of the week, the Federal Reserve policy statement, which will be released later in the day. In other economic news, the US trade deficit narrowed in September and easily surpassed expectations. The weekly crude oil inventories came in at 3.4 million, shy of the estimate. On Thursday, the US releases two key events – Advance GDP and Unemployment Claims.

The markets are bracing for another dovish statement from the Federal Reserve, which could hurt the US dollar. Investors have therefore been snapping up gold on Wednesday, and the precious metal has gained over 1% on the day and is trading at a 2-week high. The Federal Reserve is not expected to raise interest rates, but any hints about a rate hike (which is unlikely) could send the US dollar sharply higher. What the markets would really appreciate is some clarity about its monetary plans. Gone are the days of the indecipherable Fedspeak from Alan Greenspan, whose statements looked like they were written in English but were ambiguous and obtuse in the extreme. At the same time, the current Federal Reserve has failed to communicate effectively with the markets, which continue to receive conflicting signals from Fed policymakers regarding the timing of a rate hike. These mixed messages are no accident, but rather reflect the divisions between voting Fed members with regard to a rate hike. This has led to volatility in the currency markets based on the public remarks of Fed members, even though such comments may be no more than the personal view of that individual, and do not represent actual Fed policy.

US durables, which helps gauge the strength of the manufacturing sector, were dismal in the September reports. Core Durable Goods Orders fell 0.4%, compared to the forecast of 0.0%. It marked the indicator’s first decline in six months. There was no relief from Durable Goods Orders, which posted a sharp decline of 1.2%, although this was within expectations. This was the indicator’s second straight decline, and these weak figures underscore a weak manufacturing sector, which continues to be hampered by weak global demand for US goods. Meanwhile, CB Consumer Confidence softened in October, coming in at 97.6 points, well off the estimate of 102.5 points. Weaker consumer confidence could translate into less spending by the US consumer, which would be bad news for the economy.

XAU/USD Fundamentals

Wednesday (Oct. 28)

• 12:30 US Goods Trade Balance. Estimate -64.9B. Actual -58.6 B
• 14:30 US Crude Oil Inventories. Estimate 3.7M. Actual 3.4M
• 18:00 FOMC Statement
• 18:00 Federal Funds Rate. Estimate <0.25%

Upcoming Events

Thursday (Oct. 29)

•  12:30 US Advance GDP. Estimate 1.6%
• 12:30 US Unemployment Claims. Estimate 264K

*Key releases are highlighted in bold

*All release times are GMT

XAU/USD for Wednesday, October 28, 2015

USD/CAD October 28 at 15:10 GMT

USD/CAD 1180 H: 1183 L: 1165

XAU/USD Technical

• XAU/USD posted gains late in the Asian session. After an uneventful European session, the pair has posted sharp gains early in North American trade.
• On the downside, 1162 has some breathing room as the pair has posted strong gains.
• On the downside, 1180 is under strong pressure and could break during the North American session.
• Current range: 1162 to 1180

Further levels in both directions:

• Below: 1162, 1151 and 1134
• Above: 1180, 1192 and 1204

OANDA’s Open Positions Ratio

XAU/USD ratio is unchanged on Wednesday, despite the strong gains in gold prices. Long positions continue to have a slight majority (53%) , indicative of slight trader bias towards gold continuing to move 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.