- Only 44% of SWFX market participants expect the bullion to climb in price
- As US markets are closed, traders are ready to focus on equities, oil on Monday
- RSI indicator no longer says the bullion is overbought, while aggregate daily indicators remain positive
- Economic events to watch over the next 24 hours: US Bank Holiday; ECB President Draghi Speaks; New Zealand Retail Sales (Q4); RBA Meeting Minutes
Gold dropped 1% on Monday, declining for a second day in a row after reaching its highest level in a year last week, dragged down by a recovery in stock markets and selling from China after the Lunar New Year holiday. The precious metal rose to a year-high of $1,260.60 on Thursday as turbulence in global stock markets fuelled safe-have demand for the metal. Meanwhile, assets of SPDR Gold Trust, the top gold-backed exchange-traded fund, declined 0.71% to 710.95 tonnes on Friday.
US retail sales climbed slightly in January, rising for the third consecutive month, evidence that Americans kept shopping despite steep declines in equity prices. According to the Commerce Department, retail sales increased a seasonally adjusted 0.2% last month, the same as in December. Excluding the effect of falling gas prices, sales increased 0.4%. Americans boosted their purchases in January of autos, home supplies and groceries, and spent more online. Greater job security, rising wage growth and falling gasoline prices may be encouraging more consumers to loosen their purse strings after a fourth-quarter slowdown. A pickup in household purchases, which makes up the lion's share of the economy, would help the US prevent the negative effects of a strengthening US Dollar, weak foreign demand and tumultuous financial markets. Continued improvement in the labour market is keeping Americans spending. US employers added 151,000 to payrolls in January after expanding headcounts by 262,000 the in the prior month. In addition to that, average hourly earnings increased 2.5% in the 12 months ended January following a 2.7% gain in December that was the most since 2009. Consumers are the engine that has been powering the US economy for the past two years as they account for roughly 70% of GDP.
China's trade shrank significantly more than economists had predicted in January, as the world's second biggest economy continued to suffer from sluggish global demand and a slowdown at home. Exports dropped 11.2% to $177.5 billion, compared with the 1.4% decline reported in December. At the same time, imports plummeted 18.8% to $114.2 billion, following the previous month's plunge of 7.6%, leaving a trade surplus of $63.3 billion. While steep drop in exports is worrying for China, the fall in imports reflects weaker global commodity prices as well as moribund demand. According to China's customs agency, oil imports dropped 4.6% year-on-year in January, while coal imports plunged 9.2%. The recent data add to mounting worries about China and the pace the world's second biggest economy is slowing. Last year the Chinese economy expanded at the slowest pace in 25 years, triggering equity prices crash, causing capital to flood out of China, and prompting policy makers to take monetary stimulus measures to avoid hard landing. Over the last six month the People's Bank of China has devalued the Chinese Yuan sharply, causing a massive shock in global markets. Officials anticipate growth this year of between 6.5% and 7%.
Upcoming fundamentals: Focus on Asian news in the run up to US holiday
Equity trading in America will be closed in the beginning of this week, as the country celebrates the President's Day. Therefore, all focus among gold traders will shift to other regions that are usually considered as less influential for the bullion. Nevertheless, the ECB President Mario Draghi speaks today in Brussels in a testimony before the European Parliament. Additionally, some news from Australia and New Zealand are likely to shake markets in the late evening. Retail Sales from the smaller South Pacific country are out at 21:45 GMT, as analysts foresee a healthy 1.4% gain in the fourth quarter 2015 after a 1.6% pick up in Q3. Meantime, the Reserve Bank of New Zealand will release its new inflation expectations for the country at 2:00 GMT on Tuesday. Since early 2015 the two-year CPI estimate has been unchanged at 1.9%. Alongside, the Reserve Bank of Australia will publish the monetary policy meeting minutes at 0:30 GMT tomorrow where hints concerning extra rate cuts are a likely outcome.
Gold attempts to retake monthly R3 at 1,209
The bullion's bears are trying to demolish the rally of Thursday when the metal had surged from sub-1,200 to above 1,245. Monday morning sees a moderate sell-off, as markets regain risk-taking sentiment. The key support is placed at 1,209 represented by the monthly R3. A drop below here would allow for a loss below the 1,200 psychological mark and in the direction of the October 2015 high at 1,191. Technical indicators still estimate more purchases and the RSI assumes gold is not overbought any more. However, the bullish scenario is quite unlikely to materialise over the next 24 hours.Daily chart
The spot comes off the May 2015 high at 1,232 and is getting ready to approach the June 2015 high at 1,205. The buoyancy of gold is expected to recover near the latter mark, as the 200-hour SMA (1,184) is also quickly heading to the North. Therefore, for now we tend to maintain our positive outlook for the yellow metal, even though waning global turbulence could hammer prices in the medium-term.
Hourly chart
Sentiment changed for the first time in five days
The total percentage of bullish open positions on the OANDA market pulled back from 56% to 54% over the weekend. Alongside, the same number of SAXO Bank traders (54%) is keeping the positive stance with respect to gold and here the bullish share has added three pp from Friday.