Gold Under Pressure After Fed Surprise

Gold has posted modest losses on Thursday, as the spot price per ounce stands at $1153 in the North American session. There was sharp volatility in the price of gold on Wednesday due to the hawkish Fed policy statement which surprised the markets. In Thursday’s economic news, US Advance GDP was close to the estimate, and Unemployment Claims beat expectations. Traders should keep a close eye on Friday’s key event – US Employment Cost Index.

The Federal Reserve surprised the markets with a hawkish policy statement on Wednesday. Prior to the statement, gold had strengthened as the markets were expecting the Fed to avoid any hints about the timing of a rate hike. However, the precious metal coughed up these gains and more (dropping 1.8% in value) immediately after the Fed statement, which revived the possibility of a December hike. The Fed was clearer in its October statement than it has been for some time, saying that it would raise rates when there is further improvement in the US labor market and when inflation rises closer to the 2% target. The markets pounced on the following excerpt from the statement:

“In determining whether it will be appropriate to raise the target range at its next meeting, the Committee will assess progress–both realized and expected–toward its objectives of maximum employment and 2 percent inflation” [emphasis mine]

The next Fed meeting is mid-December, so the markets will be in alert mode for any further hints about a rate hike. As well, key US numbers will be closely monitored, especially employment and inflation data, as the strength of these numbers in the next several weeks will play a critical role in determining whether the Fed will press the rate trigger in December.

Earlier on Thursday, US Advance GDP for the third quarter posted a gain of 1.5%. This was a much softer reading than the Final GDP in Q2 of 3.9%, but was very close to the forecast of 1.6%. Unemployment Claims beat the estimate for a fourth straight week, coming in at 260 thousand. The estimate stood at 264 thousand.

XAU/USD Fundamentals

Thursday (Oct. 29)

• 12:30 US Advance GDP. Estimate 1.6%. Actual 1.5%
• 12:30 US Unemployment Claims. Estimate 264K. Actual 260K
• 12:30 US Advance GDP Price Index. Estimate 1.5%. Actual 1.2%
• 13:10 FOMC Member Dennis Lockhart Speaks
• 14:00 US Pending Home Sales. Estimate 1.1%. Actual -2.3%
• 14:30 US Natural Gas Storage. Estimate 70B. Actual  63B.

Upcoming Key Events

Friday (Oct. 30)

• 12:30 US Employment Cost Index. Estimate 0.6%

*Key releases are highlighted in bold

*All release times are GMT

XAU/USD for Thursday, October 29, 2015

USD/CAD October 29 at 14:30 GMT

USD/CAD 1152 H: 1162 L: 1150

XAU/USD Technical

• XAU/USD posted slight gains late in the Asian session but was unable to consolidate these gains.
• On the downside, 1151 is under strong pressure.
• 1162 is a weak resistance line.
• Current range: 1151 to 1162

Further levels in both directions:

• Below: 1151, 1134 and 1098
• Above: 1162, 1180, 1192 and 1204

OANDA’s Open Positions Ratio

XAU/USD ratio is unchanged on Thursday. Long positions continue to have a slight majority (53%) , indicative of slight trader bias towards gold reversing direction 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.