- SWFX sentiment signals no changes over New Year holidays, remains 56% bullish
- November-December downtrend to be a key mid-term driver for gold
- Five out of eight daily technical indicators are neutral; weekly ones see gold lower this week
- Economic events to watch in the next 24 hours: Euro zone, UK and US Manufacturing PMI (Dec); German CPI (Dec); US ISM Manufacturing PMI (Dec) and Construction Spending (Nov); UK Mortgage Approvals (Nov); Canadian RBC Manufacturing PMI (Dec)
The first economic report of 2016 showed business activity in China's manufacturing sector continued to falter for a fifth consecutive month in December, the longest such streak since 2009. According to the National Bureau of Statistics, the official purchasing managers index climbed to 49.7 last month from 49.6, the lowest level in three years in November. Nevertheless, the gauge remained below the key 50-mark threshold, which separates contraction from expansion. Furthermore, the Caixin China Manufacturing PMI declined to 48.2 in December from 48.6, indicating contraction in the sector for the 10th straight month. Amid persistent weakness in China's manufacturing sector there was more positive news from the NBS' separate non-manufacturing PMI report, which showed the index climbed to 54.4 in December, the fastest growth in 18 months. Should Caixin's services report for December later in the week reveal a similar strength of the sector to that recorded in the official survey, it will add to signs of China's two-speed economy and reinforce the view that China's economic rebalancing found further traction at the end of 2015. China's leaders say 2015 growth can meet the target of about 7% and reassure they are ready to act to prevent a sharp slowdown. President Xi Jinping said GDP growth in the next five years should average at least 6.5% per year.
Contracts to buy previously owned homes in the US dropped in November for the third time in four months, suggesting growth in the housing market may be cooling. According to the National Association of Realtors, pending home sales index fell 0.9% to 106.9, compared with a 0.5% gain expected by economists. In October, pending home sales in climbed 0.4%, revised from a previously reported gain of 0.2%. In annual terms, pending home sales increased at an annual 5.1% rate in November, surpassing expectations for a 4.0% rise and following a gain of 2.3% in the preceding month. Pending home contracts become sales after a month or two, and the decreases in recent months could indicate slower growth in homebuying in 2016, when interest rates are predicted to climb. Mortgage rates have only inched higher since the Fed hiked the benchmark rate by a quarter point on December 16, but policy makers expect to continue raising rates next year. Furthermore, the NAR reported earlier this month that its more closely watched index, final sales of existing homes plunged 10.5% in November to an annual rate of 4.76 million, the lowest level in 19 months. The NAR pointed to delays triggered by new federal rules, coupled with a tight supply of for-sale homes, as the primary reasons.
Upcoming fundamentals: Production PMI data across Europe and North America
European manufacturing sector, which is much less important for the region's economy than the services industry, is still estimated to grow at a moderate pace in December. The data will start coming in at 8:15 GMT when Spanish numbers are due. They will be quickly followed by Italy, France, Germany and the whole Euro zone. UK data will be traditionally announced at 9:30 GMT, and there the PMI index is foreseen to pick up from 52.7 to 52.8 points. On the other hand, weakness in production activity in the US will most probably continue to linger in December, as the PMI is forecasted to stay below the threshold of 50 points.
Gold gains ground on weaker US Dollar
Gold prices have been rising in the morning on January 4, the first working day after a long holiday. Both market volatility and trading volume are highly likely to increase above pre-Christmas levels soon, meaning price movements can become less predictable. In case the US statistics disappoints on Monday, then we should see the bullion consolidating above monthly/weekly PP at 1,065. This fact will therefore expose the 20-day SMA at 1,068, which is followed by the Nov-Dec downtrend at 1,075.Daily chart
Gold is at risk of dropping towards 1,046 in the medium-term, provided that the price is generally remaining below 200-hour SMA in the one-hour chart. In case of a surge strongly above the 1,070 mark, the focus will then shift to the previous month's high at 1,088. Moreover, a major demand at 1,046/44 (2015/2010 lows) will keep our forecast somewhat uplifted for the very near-term.
Hourly chart
SWFX market is silent after holidays
Meanwhile, OANDA long share picked up from 75% to 77% by the January 4 morning, meaning the precious metal is at risk of becoming too overbought in the nearest future. As for the SAXO Bank bullish-bearish distribution, there around seven out of ten clients are still holding bullish positions on gold.