Gold remains under bearish pressure

Source: Dukascopy Bank SA
  • Share of long positions returned back to 63% after the bears-led trading session
  • Market activity to go up by week-end, as central bank decisions and US retail sales are in focus
  • Daily technical indicators see no change on a daily basis, keep neutral stance
  • Economic events to watch in the next 24 hours: French CPI (Nov); Bundesbank President Weidmann Speaks; SNB Interest Rate Decision and Press Conference; US Unemployment Claims (Dec 4), Export/Import Price Index (Nov) and Monthly Budget Statement (Nov); BOE Interest Rate Decision, Asset Purchase Facility, Meeting Minutes and Monetary Policy Statement; UK Trade Balance (Oct); Chinese Foreign Direct Investment (Nov); BOE Governor Carney Speaks

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Energy prices were again the main drivers for the commodity market on Wednesday of this week. Crude and Brent were dampened by supply/demand and continuous OPEC worries and therefore tumbled by 0.93% and 0.37%, respectively. Natural gas followed its peers to show a daily loss of about 0.4%. In the precious metals' market, the bulls were initially posting confident gains for both gold and silver. However, the day-end initiative was overtaken by short traders who took the situation and further development into their hands. As a result of that, gold's intraday rally of around 1% was later turned into a drop of 0.2% by the end of trading. Gold was also little changed on Thursday ahead of a widely expected US rate hike next week, with even a decline in the US Dollar failing to boost invertors' interest in the precious metal. Bullion traders remain cautious as the Fed is likely to raise the cost of borrowing for the first time in nearly a decade at its next policy meeting on December 15-16. Meanwhile, silver suffered softer losses and was broadly unchanged on the day-to-day basis. The similar no-change outcome was shared with the benchmark S&P GSCI Index and corn prices, being that both of them increased by only two and seven basis points, accordingly.

The Reserve Bank of New Zealand lowered its official cash rate for the fourth time this year, saying the nation's economy needed support amid lower terms of trade, while inflationary pressures remained benign. In a widely expected move, RBNZ Governor Graeme Wheeler delivered a quarter percentage point rate cut to return OCR to its historic low level of 2.50%. A sharp appreciation of the New Zealand Dollar since the central bank last cut interest rates in September dashed every hope of getting inflation back to target levels. The Kiwi Dollar has gained around 5% on a trade weighted basis since August, and from $0.63 versus the Greenback to $0.67. A higher exchange rate dampens inflation by making imports cheaper and clouds the growth outlook as exports become less competitive. New Zealand's inflation climbed 0.4% in the third quarter, well below the central bank's target range of 1%-3%. The central bank is likely to keep interest rates on hold for the time being, unless there are some significant global or local economic shocks. The RBNZ revised its annual GDP growth projection for the year ended March 2016 to 2.2% from 2.1% and its 2017 forecast from 2.5% to 2.9%.


China consumer inflation picked up last month, due to price gains for food and services, suggesting demand in the world's second biggest economy is strengthening after introduction of fiscal stimulus and interest-rate cuts. The consumer-price index rose 1.5% in November from a year earlier, the National Bureau of Statistics reported, following the 1.3% gain in October. The main driver for the CPI increase were rising food prices, as vegetable prices surged 9.4% year-on-year, while prices for meat and poultry products soared 6.2%. At the same time the producer price index dropped 5.9% versus the projected 6% decrease, extending declines to a record 45 months. Earlier this week, China reported lower than expected trade surplus in November, as exports plunged 6.9% year-on-year in US dollar terms while imports fell 8.7% at the same time. Although exports dropped more than expected last month, imports surprised on the upside declining much less than expected 11.9% decline, signalling domestic demand is stabilizing after six central bank interest rate cuts since November last year and expanded government spending. China's economy is expected to mark a 7% economic growth rate this year, still the weakest pace in 25 years.

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Upcoming fundamentals: Another dovish BOE statement is at the corner?



All eyes are on central banks on Thursday, though the focus is somewhat lighter than on the Fed meeting next week. Nevertheless, the SNB rate decision is due at 8:30 GMT, with no changes to monetary policy expected this time. Even more important central bank watch is on the Bank of England. Today we are going to have no press conference by the Governor Mark Carney, thus more attention will be paid to the monetary policy statement at 12:00 GMT. The key interest rate is forecasted to hold steady at 0.5%, and the same will be probably applicable for the vote distribution between MPC members. Ian McCafferty is likely to vote again in favour of raising the official rate by 25 basis points. Meantime, markets are looking for signs that the BOE is worried about inflation expectations and slower economic growth both in the UK and globally. In case such phrases appear in the statement, then economists may increase their dovish odds with respect to the Bank of England. Last time Mark Carney was unusually soft in his words about monetary policy and inflation/growth outlook.


Gold remains under bearish pressure

The bullion saw its value climbing in the direction of the monthly pivot point on Wednesday. However, the bears were allowed to register the day-end losses, thus sending the price back below the 20-day SMA to 1,072. The long upper shadow formed by XAU/USD means that the US Dollar's bulls are keeping commodities under pressure before next week's Fed meeting. A rally is not off the table, but we expect the monthly PP at 1,086 to try preventing the bullish outcome, as it happened earlier last week. At the same time, a sufficient demand was set up by both weekly PP and July low at 1,073/70.

Daily chart
© Dukascopy Bank SA

Since last Friday the precious metal has been building a symmetrical triangle pattern. This is a typical continuation pattern, meaning we can estimate that it will lead to a rally after confirmation. Another support is coming from the 200-hour SMA, currently at 1,068.

Hourly chart
© Dukascopy Bank SA

Percentage of bullish positions rose to 63%

Market sentiment with respect to the yellow metal has remained broadly flat during the previous trading day. We observed the total number of bullish positions rising from 62% to 63% in the SWFX market. On the basis of one working week, the overall positive sentiment dipped down by nine percentage points and the bears are gaining more ground.

While the percentage of the bulls is generally weakening in the SWFX market, the yellow metal remains heavily overbought in both OANDA and SAXO Bank markets. Yesterday OANDA's bulls pushed their share up from 73.24% to 74.27%, while SAXO Bank traders are gold-long in 70.91% of all cases.












Spreads (avg,pip) / Trading volume / Volatility


Average expectation among market participants for the end of March 2016 is 1,100

Meanwhile, traders, who were asked regarding their longer-term views on gold between Nov 10 and Dec 10 expect, on average, to see the metal around 1,090 by the end of next year's March. At the same time, 50% of participants believe the price will be generally below this level in ninety days. Alongside, 35% of those surveyed reckon the price will trade in the range between 1,100 and 1,250 throughout the next three months.

© Dukascopy Bank SA

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