Gold Rises to $1080 as Rally Continues

Gold has moved higher on Monday, with a spot price of $1080.25 per ounce in the North American session. On the economic front, it’s a quiet start to the week, with no US economic indicators. The markets are keeping a close eye on US Final GDP, which will be released on Tuesday. An unexpected reading from this key indicator could have a sharp impact on gold prices.

There hasn’t been much to cheer about when it comes to gold, but the metal has surprised the markets and rallied higher over the past two days, gaining $17, good enough for a 2.0% rise in gold’s value. Gold has recovered after taking a hit in the aftermath of the Federal Reserve’s rate hike, when gold briefly dropped below the $1050 level. Since then, investors have snapped up the metal. This strong performance by gold stands in marked contrast to oil as well as the major currencies. Will the gold rally continue this week?

In a historic move, the Federal Reserve raised interest rates by 0.25 percent last week, the first upward move since June 2006. The Fed dropped a broad hint in its October policy meeting about a rate hike before the end of 2015, and predictably, investors and traders were busy trying to guess whether the Fed would indeed press the rate trigger. Janet Yellen and her colleagues at the Fed deserve full marks for putting into play a carefully-crafted strategy, sending a steady of stream of signals to the markets that it was intending to tighten monetary policy, if economic conditions remained positive. This gave the markets ample time to price in a rate hike, and currency market volatility was not excessive after the US rate hike, the first in almost 10 years.

The rate hike of just 0.25 percent is expected to have limited economic impact, but the psychological aspect of the rate move cannot be overemphasized, as the Fed has given the US economy a critical vote of confidence, and has indicated that additional rates are likely over the course of 2016. The Fed’s strategy of effective communication with the markets contrasts sharply with the bungled approach of Mario Draghi at the ECB, who hinted that the ECB would take significant easing steps at its December meeting, but failed to deliver as the ECB did little more than extend the current QE program for another six months. This led to complete turmoil in the markets, resulting in the euro surging by as much as 500 points against the US dollar before it leveled off.

XAU/USD Fundamentals

Monday (Dec. 21)

* There are no US releases on Monday

Upcoming Key Events

Tuesday (Dec. 22)

• 13:30 US Final GDP. Estimate 1.9%

*All release times are GMT

XAU/USD for Monday, December 21, 2015

XAU/USD December 21 at 18:20 GMT

XAU/USD 1080.57 H: 1081 L: 1063

XAU/USD Technical

• XAU/USD was uneventful in the Asian session. The pair has posted considerable gains in the European and North American sessions.
• 1080 was tested earlier in support and remains under pressure.
• There is resistance at 1098.
• Current range: 1080 to 1098

Further levels in both directions:

• Below: 1080, 1043, 1024 and 980
• Above: 1098, 1134 and 1151

OANDA’s Open Positions Ratio

XAU/USD ratio has shown little movement on Monday, despite strong gains by gold. Long positions continue to command a solid majority (71%), indicative of strong trader bias towards gold prices continuing to move to higher levels.