XAU/USD – Gold Slide Continues as Risk Appetite Improves

Gold has posted losses on Tuesday, continuing the downward trend which marked the Monday session. The metal is trading at $1334.62 in the North American session, its lowest level since July 1. On the release front, it was another quiet day in the US. JOLTS Job Openings dropped to 5.50 million, well below the estimate of 5.74 million. Wholesale Inventories dropped to 0.1% in May, compared to 0.6% a month earlier.

Gold prices have hit a rough patch this week, dropping 2.5 percent. Investors are showing a greater appetite for risk, as underscored by strong gains in the global equity markets, and this has weakened gold. There is a feeling of greater clarity as the UK will have a new prime minister at the helm, after weeks of political gridlock. As well, a decisive election win in Japan by Prime Minister Shinzo Abe means that the path is clear for further monetary easing measures. Despite gold’s losses this week, the metal has still posted gains in the month of July.

Britain’s political picture, which has been muddy since the Brexit vote in June, has stabilized more quickly than expected. Prime Minister Cameron was expected to remain in a caretaker role until the autumn, but he will relinquish the reins on Wednesday, when Home Secretary Theresa May will take over as Prime Minister. May was a strong supporter of the Remain camp, but she will now be mandated with presiding over Britain’s exit from the European Union. May has stated that the government fully intends to honor the referendum vote, stating “Brexit means Brexit”. However, Britain’s exit could be a protracted and messy affair. The British electorate may have voted “Leave”, but the vote may prove to be the easy part of the process. An EU member has never invoked the exit clause before, and there is no timetable as to when the exit will occur or what kind of trade agreement will define the new economic relationship between the EU and Britain. The Brexit vote to leave the EU in late June has caused political and financial turmoil in Britain and sent the pound reeling. Still, there is some optimism in the air as the political landscape appears to have stabilized.

The Federal Reserve hasn’t strayed from the sidelines in the first half of 2016, and the markets aren’t expecting a dramatic shift anytime soon. However, if US employment and inflation numbers improve in the second half of the year, the likelihood of a rate hike will certainly increase. Last week’s minutes from the June policy meeting indicated that Janet Yellen & Co. remain cautious about the strength of the US economy. Although some Fed members have said that rates could be raised up to two times in 2016, clearly the markets aren’t buying it. Given the current economic climate, the markets are pessimistic about any rates moves before 2017. Investors have priced in no chance of a rate increase at the next Fed meeting on July 26-27, and just an eight percent chance of a hike in 2016. Still, market sentiment can change very quickly, so if US employment and inflation numbers improve in the second half of the year, the likelihood of a rate hike sometime this year will increase.

XAU/USD Fundamentals

Tuesday (July 12)

• 6:00 US NFIB Small Business Index. Estimate 94.1. Actual 94.5
• 9:15 US FOMC Member Daniel Tarullo Speaks
• 9:35 US FOMC Member James Bullard Speaks
• 10:00 US JOLTS Job Openings. Estimate 5.74M. Actual 5.50M
• 10:00 US Wholesale Inventories. Estimate 0.2%. Actual 0.1%
• 13:01 US 10-year Bond Auction. Actual 1.52%

*Key releases are highlighted in bold

*All release times are EDT

XAU/USD for Tuesday, July 12, 2016

XAU/USD July 12 at 13:30 EDT

Open: 1354.26 High: 1357.78 Low: 1330.24 Close: 1333.75

XAU/USD Technical

• XAU/USD was flat in the Asian session. The pair has posted losses in European and North American trade
• 1361 has strengthened in resistance following losses by XAU/USD on Tuesday
• 1331 is under strong pressure in support. This line was tested earlier in the day
• Current range: 1331 to 1361

Further levels in both directions:

• Below: 1331, 1307, 1279 and 1255
• Above: 1361, 1388, 1416 and 1433

OANDA’s Open Positions Ratio

XAU/USD ratio is almost unchanged on Tuesday, despite considerable losses by XAU/USD. Long positions command a majority (57%), indicative of trader bias towards XAU/USD reversing directions 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.