Gold Slide Continues as US Dollar Shines, Fed Meeting Next

Gold prices continue to slide on Tuesday, as the base metal has shed 1.4% so far this week. In North American trade, the spot price for an ounce of gold is $1304.85, down 0.82% on the day. On the release front, the ISM Manufacturing PMI also disappointed, dropping to 57.3 points. This was short of the forecast of 58.4 points. On Wednesday, market attention shifts to US employment indicators in the latter part of the week, starting with ADP Nonfarm Employment Change. As well, the Federal Reserve will release a rate statement.

The US dollar continues to gain ground, and that has been bad news for gold prices. Gold has plunged 3.4% since April 16 and is likely to fall below the symbolic $1300 level, for the first time since late December. There are a number of factors weighing on gold prices. Investor risk appetite remains strong, as tensions in the Korean peninsula have dropped rapidly. The leaders of North and South Korea met last week for a historic meeting, and US President Trump is scheduled to meet with North Korean leader Kim in the near future. On the domestic front, the US economy continues to perform well and inflation is moving higher. This has raised expectations that the Federal Reserve will raise rates four times in 2018, which is bullish for the US dollar.

The markets are keeping a close eye on the Federal Reserve, which winds up its monthly policy meeting on Wednesday. The Fed is expected to maintain the benchmark rate at a range between 1.50% and 1.75%, and analysts will be keeping a close eye on the rate statement – a hawkish statement could propel the US dollar to higher levels. There is growing sentiment that the Federal Reserve will raise interest rates four times this year, although Fed policymakers have not changed their forecast of three increases in 2018. One scenario envisions the Fed raising rates once each quarter until the economy shows signs of slowing down. If inflation continues to move higher and economic conditions remain strong, the dollar should continue to perform well against the euro and other major currencies.

XAU/USD Fundamentals

 Monday (April 30)

• 8:30 US Core PCE Price Index. Estimate 0.2%
• 8:30 US Personal Spending. Estimate 0.4%
• 8:30 US Personal Income. Estimate 0.4%
• 9:45 US Chicago PMI. Estimate 58.2
• 10:00 US Pending Home Sales. Estimate 0.6%

Tuesday (May 1)

• 10:00 US ISM Manufacturing PMI. Estimate 58.6

*All release times are DST

*Key events are in bold

XAU/USD for Tuesday, May 1, 2018

XAU/USD May 1 at 11:40 DST

Open: 1315.60 High: 1316.37 Low: 1301.85 Close: 1304.85

XAU/USD Technical

• XAU/USD edged lower in the Asian and European sessions and recorded stronger losses in European trade. The pair continues to lose ground in North American trade
• 1285 is providing support
• 1307 has switched to a resistance role after losses by the pair on Tuesday. It is a weak line
• Current range: 1285 to 1307

Further levels in both directions:

• Below: 1285, 1260 and 1236
• Above: 1307, 1337, 1375 and 1416

OANDA’s Open Positions Ratio

XAU/USD ratio is showing gains towards long positions. Currently, long positions have a majority (66%), indicative of trader bias towards XAU/USD reversing directions and moving upwards.  

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.