XAU/USD – Gold Heads Lower on Fed Hike
Gold continues to lose ground on Thursday, following losses in the Wednesday session. In North American trade, the spot price for one ounce is $1128.01. On the release front, CPI and Core CPI both came in at 0.2%, also matching the estimates. Other key events looked sharp, as unemployment claims dipped to 254 thousand, while the Philly Fed Manufacturing Index surged to 21.5 points, well above expectations.
The US dollar has posted broad gains since Wednesday, when the Federal Reserve hiked rates by a quarter point, to 0.50%. Gold, which moves inversely to interest rates, has also taken a hit, declining 2.6% since the rate announcement. Although the rate move was widely expected and priced in by the markets at close to 100%, the markets have reacted strongly to the momentous event. The rate hike marked the first rise since December 2015 and only the second rate hike since 2008. In its rate statement, the Fed sounded positive about the economy, noting that the “labor market has continued to strengthen and that economic activity has been expanding at a moderate pace since mid-year”. As well, the Fed revised upwards its forecast of US economic growth to 1.9% in 2016 and 2.1% in 2017, slightly higher than the Fed’s September estimate. What’s next for the Fed? In September, Fed officials said they expected two rate hikes in 2017, but the Fed is now projecting three or even four hikes next year. However, projections can change based on economic conditions, and the wild card of Donald Trump could also play a critical role in monetary policy. Trump’s economic platform remains sketchy, apart from declarations that he plans to increase government spending and cut taxes. If Trump’s economic policies lead to higher inflation levels, the Fed may have to step in with larger hikes in order to keep the economy form overheating.
- XAU/USD was flat in the Asian session. The pair posted losses in the European session and has steadied in North American trade
- 1111 is providing support
- 1130 is a weak resistance line
- Current range: 1111 to 1146
Further levels in both directions:
- Below: 1111, 1076 and 1043
- Above: 1130, 1146, and 1174
OANDA’s Open Positions Ratio
XAU/USD ratio is unchanged in the Thursday session. Currently, long positions command a substantial majority (77%). This is indicative of trader bias towards XAU/USD continuing to move to higher levels.