XAU/USD – Gold Rallies to 8-Week High on Trump’s Dollar Comments

Gold prices have moved higher, as the metal currently trades its highest level since November 22. In the North American session, the spot price for one ounce is $1212.53. It’s a quiet day on the release front. The only economic event was Empire State Manufacturing Index, which dipped to 6.5, short of the forecast of 8.1. Wednesday promises to be busy, with the US releasing key inflation data. CPI is expected to edge up to 0.3% in the December report.

The US dollar was broadly lower on Tuesday, courtesy of president-elect Donald Trump. In an interview with the Wall Street Journal published on Monday, Trump complained that the currency was  “too strong”. These sentiments were later echoed by Trump advisor Anthony Scaramucci. Speaking at the World Economic Forum in Davos, Scaramucci warned that “we must be careful of a rising dollar.” Trump broke with the unwritten rule that US presidents refraining from commenting on the US dollar, and his comments could be a taste of more to come, as Trump is unlikely to veer from his habit of making controversial comments which can affect market movement.

As the US ushers in the New Year and inaugurates a new president, consumer confidence indicators continue to point to a bullish US consumer. The UoM Consumer Sentiment in January was solid, although the markets had expected a stronger performance. The indicator was almost unchanged at 98.1, shy of the forecast of 98.6. Despite the optimism, US retail sales were a mix during the December holiday season. Retail Sales improved to 0.6%, edging above the estimate of 0.5%. However, much of the increase in spending was attributable to automobile sales, at the expense of other sectors of the economy. This was reflected in Core Retail Sales (which excludes car sales), which remained stuck at 0.2%, compared to a forecast of 0.5%. Still, analysts are confident that a bullish consumer will translate into strong spending numbers in the next few months. There was good news on the inflation front, as wholesale prices (measured by PPI) rose 0.3%, beating the forecast of 0.1%. This marked the third rise in four months, as inflation is pointing upwards due to higher oil prices. If inflation continues to climb towards the Federal Reserve target of 2.0%, we could see the Fed step in and raise interest rates. Last week, FOMC member Patrick Harker took note of the strong US economy and projected three “modest” rates from the Fed in 2017.

Fed’s Harker Sees 3 Rate Hikes in 2017

Tuesday (January 17)

• 8:30 US Empire State Manufacturing Index. Estimate 8.1. Actual 6.5
• 8:45 US FOMC Member William Dudley Speaks
• 10:00 US Treasury Secretary Jack Lew Speaks
• 10:00 US FOMC Member Lael Brainard Speaks

Wednesday (January 18)

• 8:30 US CPI. Estimate 0.3%
• 8:30 US Core CPI. Estimate 0.2%

XAU/USD for Tuesday, January 17, 2017

XAU/USD January 17 at 12:20 EST

Open: 1203.01 High: 1218.90 Low: 1203.01 Close: 1212.53

XAU/USD Technical

• XAU/USD has recorded gains in the Asian and European sessions. The pair is choppy in North American trade
• 1199 is providing support
• 1232 is the next resistance line
• Current range: 1199 to 1232

Further levels in both directions:

• Below: 1199, 1174, 1146 and 1130
• Above: 1232, 1260 and 1285

OANDA’s Open Positions Ratio

XAU/USD ratio is almost unchanged in the Tuesday session. Currently, long positions command a strong majority (72%). This is indicative of trader bias towards XAU/USD breaking out and climbing to higher levels.

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