- SWFX traders remain committed to long positions and keep their share at 71%
- 2010 low becomes the main bearish target, but a rebound is not off the table after ECB decisions
- Daily technical indicators are sending the aggregate "sell" signal
- Economic events to watch in the next 24 hours: Italian, French, Spanish, German, Euro zone, UK and US Services PMI (Nov); Euro zone Retail Sales (Oct); US Unemployment Claims (Nov 27), Factory Orders (Oct), Natural Gas Reserves (Nov 27) and ISM Non-Manufacturing PMI (Nov); FOMC Member Fischer Speaks; Fed Chair Yellen testifies; ECB Interest Rate Decision, Monetary Policy Statement and Press Conference; OPEC Meeting in Vienna; Australian Retail Sales (Oct)
Gold dived to the lowest level in almost six years on Thursday after comments from Fed Chair Janet Yellen virtually guaranteed a US rate hike this month, while the US Dollar strength also weighed on the precious metal. Yellen said that she was "looking forward" to a US rate lift that will be considered as a sign of the world's number one economy's recovery from recession. Yellen voiced confidence in the nation's economy's health, saying job growth through October suggested the labour market improving even if not at full strength. Assets in SPDR Gold Trust, the top gold-backed exchange-traded fund, plunged 2.41% to 639.02 tonnes on Wednesday, the lowest since September 2008.
Activity in the UK construction sector dropped to the lowest level in seven months in November, hurt by the weakest growth in housing activity since mid-2013, suggesting the sector will continue to weigh on Britain's recovery in the last quarter. The Markit/CIPS UK construction PMI plunged to 55.3 from 58.8 in October. While the reading remained firmly above the 50 level that indicates an expansion, it was the slowest pace of growth since April and below economists' predictions for a slight decline to 58.5. The Pound lost 0.28% versus the US Dollar to trade at 1.5038, down from 1.5065 before the data release.
The Bank of Canada maintained its key overnight lending rate at 0.5%, highlighting that the domestic economy was adjusting largely as expected to the effects of low prices and other headwinds. The central bank stressed that the nation's economy benefitted from the US economic recovery, weaker Canadian Dollar and the bank's easing policy. Yet, the resource sector remains a problem for Canada's economy, as lower oil prices undermines the economy and business investments are facing major spending cuts in the energy related field. The latest GDP data showed the Canadian economy recovered in the third quarter, growing 2.3% annualized, close to the BoC's expectations of a 2.5% expansion rate. Nevertheless, the turnaround may be short-lived, as the quarter ended with a 0.5% contraction in September, suggesting a weak start to the final quarter of the year. According to the central bank's estimates, the nation's economy is likely to grow 1.5%.
Upcoming fundamentals: Fed's Yellen to testify, while markets to watch ECB and US data
Apart from the European Central Bank's event on Thursday, market participants are going to follow other data and price it into the commodity market in the next 24 hours. Chair of the Federal Reserve Janet Yellen is going to testify before the Joint Economic Committee of the US Congress in Washington DC. Additionally, the US data on non-manufacturing PMI is due at 15:00 GMT. The index is estimated to decline from 59.1 to 58.1 points, but it should be pointed out that the manufacturing PMI showed a much steeper than anticipated drop earlier this week. Factory orders are due at 15:00 GMT as well, and they have probably risen by 1.2% in October, up from -1.0% in September. Meanwhile, the Fed Governor Stanley Fischer will talk about financial stability in Washington DC at the Cleveland Fed conference.
Gold confirms Nov 27 low; outlook deteriorates
On Wednesday, the bullion copied the candlestick of Friday when it slumped by around one percentage point to reach the 1,057 mark. Yesterday it went further to penetrate the Nov 27 low at 1,052, while on Thursday this price has already managed to reach the weekly S1 at 1,046. Our expectations for the yellow metal are strongly negative for the medium term, but monetary policy easing from the ECB may support gold as the safe-haven metal. However, the US Dollar's bullishness will continue to weigh on prices and the bears are now aiming at the 2010 low at 1,044.Daily chart
Some support for gold will probably come from the bearish pattern's lower boundary in the one-hour chart. This line is currently placed at 1,047, with additional demand located at 1,044 (2010 low). Estimates of a possible advance are based on the historical experience, being that gold surged after the previous ECB decision to launch QE in January.
Hourly chart
SWFX bulls continue to control more than 70% of the market
On top of that, the yellow metal retains the "overbought" status in both OANDA and SAXO Bank markets. The former's clients are holding 73.76% (+4%) of bullish open trades, while SAXO Bank traders are gold-long in 69.85% of all cases.