- Bearish traders do now allow for more gains among the longs; the share of latter slid back to 41%
- Powerful February uptrend is expected to result in a jump and a testing of recent highs at 1,253
- Technical studies on both daily and weekly time frames continue forecasting a rally for gold prices
- Economic events to watch over the next 24 hours: Euro zone Services PMI (Feb) and Retail Sales (Jan); US Unemployment Claims (Feb 27), Unit Labour Costs (Q4), Services PMI (Feb), ISM Non-Manufacturing PMI (Feb) and Factory Orders (Jan); UK Halifax HPI (Feb) and Services PMI (Feb); MPC Member Haldane Speaks; Australian Retail Sales (Jan)
Gold declined on Thursday amid investors' risk-on mood after positive US jobs data, lifting Asian stock to a seven-week high. However, robust inflows into gold funds kept a lid on gold's losses. Holdings of SPDR Gold Trust, the world's largest gold-backed ETF, surged to 25.35 million ounces on Wednesday, the most since September 2014. US private sector created more jobs than expected in February, another sign that the US job market remains resilient despite economic weakness overseas and volatility in financial markets. According to payroll processor ADP, US private companies hired 214,000 workers last month, whereas economists had expected a gain of 190,000 jobs.
Business activity in Britain's construction sector unexpectedly slowed to the lowest level in ten months in February, but remained firmly in expansion territory for the 34th month in a row. The Markit/CIPS UK construction PMI declined to 54.2 in the reported month, down from 55.0 in January, compared with economists projection of 55.5. Housebuilding rose at the slowest pace since June 2013, when the UK economy started to recover, while construction firms hired staff at the weakest rate since August 2013. Optimism among companies about business activity for the year ahead dropped to the lowest level since December 2014. The latest official data showed construction output dropped in the fourth quarter of 2015, and remained 4.1% below the pre-crisis peak. Despite a weaker final quarter, and high volatility in the sector, construction sector performance improved throughout 2015 compared with the preceding year. The data followed the manufacturing PMI report, which showed manufacturing growth declined to near a three-year low in February due to a drop in new orders. Markit factory index declined to 50.8 last month, down from 52.9 in January, marking the lowest level since April 2013. Markets will now await fresh PMI data on the services sector due on Thursday. Expectations ahead suggest activity slowed slightly in February.
Switzerland's economy unexpectedly accelerated, while exports showed signs of resilience in 2015, despite a strong Swiss Franc, migrant crisis and adverse external environment undermined the country's performance. The Swiss economy expanded 0.4% in the fourth quarter of 2015, supported by consumption expenditure from private households and the public sector, according to the State Secretariat for Economic Affairs. Quarterly estimates suggest a provisional GDP growth rate of 0.9% for 2015, compared with 1.9% in 2014. The economic outlook for the Alpine country is clouded, as the loss of competitiveness resulting from the currency cap removal and subsequent Swiss Franc appreciation is likely to have a negative effect. The Franc spiked more than 25% versus the Euro in a single day. The economic slowdown in Switzerland during 2015 is also the result of sluggish private domestic demand which is expected to remain negative also in 2016. Household consumption is also expected to remain lacklustre as both employment and nominal wages are under pressure in the light of the appreciating Swiss Franc and as consumers become more downbeat about the economic prospects.
Upcoming fundamentals: US services to fall into contraction territory
There are somewhat negative expectations on the matter of services industry in the world's largest economy. Economists are calling for a drop of the ISM's non-manufacturing PMI indicator to 49.8 points in February, down substantially from 53.5 in the preceding month. In case the reality matches estimates, the services industry, which accounts for 70% of the whole output in the US, will join the production sector, which has already been losing steam for several months in a row. This data is due at 15:00 GMT together with factory orders. The latter, however, are forecasted to show a healthy increase of 2.1% for the month of January. This should follow a massive 2.9% slump in December.
Gold: February uptrend is intact, 1,253 is first goal
Despite stronger American currency, the bullion posted some upward momentum on March 2, even though it had been registering losses earlier in the day. Therefore, the February uptrend line and the weekly pivot point at 1,225 hold ground quite strongly. Bullish action may push gold as high as the 1,253 mark where the upper Bollinger band, weekly R1 and Feb 24 are placed altogether. From here we are expecting to observe a correction lower, even though the idea is still denied by aggregate technical indicators on both daily and weekly bases.Daily chart
There is a reliable buoyant action coming from the 200-hour SMA at 1,229 in the 1H chart. The moving average is strengthening the Feb 22-26 upward-sloping trend-line. Both of them are capable of pushing the precious metal towards 1,275 (Feb 18-24 uptrend), with 1,248 acting as the only major intermediate resistance represented by the peak of the first day of March.
Hourly chart
Bulls unable to maintain earlier gains
Even though bullish traders are also preserving their majority in the OANDA market, the gap between them and bearish clients fell to only 0.60% by Thursday morning. Yesterday the longs' advantage stood above eight per cent. Meanwhile, almost 53% of SAXO Bank market participants are betting the bullion is going to rally in the near-term.