- Bullish positions advanced to 60%, following gold's sharpest drop since July 20
- Yellow metal failed to test either Dec 3 low at 1,046 or 2010 low at 1,044 yesterday
- Daily indicators remain mixed on gold; weekly outlook is pessimistic
- Economic events to watch in the next 72 hours: US Services PMI (Dec) and Kansas Fed Manufacturing Activity Index (Dec); FOMC Member Lacker Speaks; Canadian CPI (Nov) and Wholesale Sales (Oct)
Gold recovered some of the losses made on Thursday, when the precious metal suffered its biggest decline in five months after the Fed raised US interest rates for the first time in nearly a decade and the Greenback soared. The US Dollar rose to the highest level in two weeks on Thursday versus a basket of major currencies, though it dropped somewhat on Friday on profit-taking. Assets in SPDR Gold Trust, the world's top gold-backed exchange-traded fund, dropped 0.70% to 630.17 tonnes on Thursday, the lowest level since September 2008.
The number of Americans filing for unemployment benefits fell last week, a sign of the labour market's health. Initial jobless claims declined by 11,000 to a seasonally adjusted 271,000 in the week ended December 12, the Labor Department reported. Economists, however, had expected 275,000 new claims last week. Claims data is often volatile during the period between the Thanksgiving and New Year's holidays. The four-week moving average of claims, which irons out weekly ups and downs, dropped by 250 to 270,500 last week. Claims had fallen steadily since 2009 until this year, when they hit the lowest level in four decades in mid-July. In November, employers created a seasonally adjusted 211,000 jobs and added a robust 298,000 in October, suggesting the job market gained traction this fall. Earlier in the week, the Fed signalled its growing confidence in the world's number one economy and announced its first rate hike in almost a decade. The Fed raised its target for the federal funds rate, the rate at which banks lend money to one another, from 0% to 0.25%. By the end of next year, the US central bank expects the benchmark interest rate to climb to a median 1.375%, which implies four more 25 basis points increases over the coming 12 months. In 2017, officials are aiming to bring the policy rate up to 2.375%, which will take another four hikes.
Sales at British retailers rose more than expected in November amid promotion campaign in the run up to Black Friday. Sales volumes surged 1.7% from October, when they declined 0.5%, according to the Office for National Statistics. For the three months to November, sales soared 5.3% from the same period a year ago, the largest gain since March. Measured on an annual basis, retail sales increased 5.0%. Sales were boosted across the board as average store prices declined an annual 3.3%. The ONS said the amount spent by shoppers increased 1.4% in November compared with the month earlier, and was also up 1.4% from the same point a year ago. The value of online sales surged by 4.9% in November from October, and was 12.7% higher compared with last year. This is positive news for Britain, which is increasingly reliant on its consumers and its powerhouse services sector to boost economic growth, alleviating earlier concerns of a slowdown in activity.
Upcoming fundamentals: Canadian inflation data is due at 13:30 GMT
Consumer prices in Canada are estimated to have been unchanged in November on a monthly basis, measured on a core basis, which excludes the eight most volatile items. The headline reading will most likely show the same pace of growth as in October, namely 0.1% month-on-month. The risks are skewed to the downside, given that the recent downturn in oil prices has not been priced into the CPI index yet.
Gold retreats the most since mid-July
Yesterday the bullion depreciated very substantially, by losing more than $20 per troy ounce. Market realized the importance of this week's Fed decision and the Dollar rallied afterwards. XAU/USD pierced through the first support at 1,062 (weekly S1), but was eventually stopped by another weekly demand at 1,050. Both Dec 3 low and 2010 low at 1,046/44 were not touched, but it can happen next week. For Friday, we expect more cautious trading and profit-fixing, meaning gold prices will probably bounce back in the direction of 1,060/65 where it will again meet the weekly S1.Daily chart
From the point of view of the one-hour chart, our expectations have to be changed from moderately pessimistic to strongly negative, as the bearish pattern was confirmed to the downside. At the same time, an early Friday's rebound could turn things around and provide a boost to gold prices. Though, the 200-hour SMA (1,068) is highly likely to put pressure on prices in the foreseeable future.
Hourly chart
SWFX bullish positions rose to 60%
The bulls have noticeably recovered in both OANDA and SAXO Bank markets since our Thursday report. The former's long traders are now keeping almost 75% of all open positions, while SAXO Bank bulls gained more than seven percentage points and raised their market share from 64% to 71.5%.