- Advantage of the bulls over bears holds at eight percentage points (54% vs 46%)
- November-December downtrend to be a key mid-term driver for gold
- Five out of eight daily technical indicators are neutral
- Economic events to watch in the next 24 hours: Spanish Flash CPI (Dec) and Current Account Balance (Oct); Euro zone M3 Money Supply (Nov); US Pending Home Sales (Nov) and Crude Oil Inventories (Dec 25); Swiss UBS Consumption Indicator (Nov)
Gold, however, rose on Wednesday, with further upside potential limited by a stronger US Dollar and weaker oil. The precious metal remained on track to close the year lower for the third time in a row, as it lost almost 10% of its value this year, due to expectations of higher US interest rates. Bullion is positively co-related to oil, which fell 1% on Wednesday after surging 3% in the previous trading session. Assets of SPDR Gold Trust, the top gold-backed exchange-traded fund, are close to a seven-year low, while short positions on COMEX gold contracts are close to an all-time high.
US consumer confidence strengthened in December amid robust economic data and falling unemployment. According to the Conference Board, consumer confidence index rose to 96.5 in December, up from 96.5 in the preceding month. In September, the reading surged to the highest level since August 2007, when consumer confidence came in at 105.6. Steady growth of the world's number one economy, recent decline in the jobless rate and modest growth of retail sales influenced Americans view about the domestic economy, labour market and spending. GDP increased by an annualized 2.0% in the third quarter, beating the forecasts calling for a 1.9% clip, according to the Department of Commerce. In the previous three-month period, the economy had expanded by a much more robust 3.9%. A separate report showed the US goods trade shortfall shrank slightly in November, as both imports and exports declined, the Commerce Department said. The trade gap narrowed 1.3% in November to $60.5 billion from a revised $61.3 billion in October. Exports of goods decreased 2% to $121 billion in November, while imports declined 1.8% to $181.5 billion, with the drop concentrated in consumer goods.
Japan's retail sales declined 1.0% in November from October, marking the first drop in two months, reflecting weak sales of winter clothing due to relatively warm weather and a decrease in fuel sales due to lower gasoline prices. Economists, however, had predicted a 0.6% decrease. A separate data showed household spending suffered the biggest annual decline in eight months, falling 2.9% in November from a year earlier. The BOJ has signalled readiness to expand stimulus if risks threaten Japan's recovery prospects. While weak emerging market demand dims the export outlook, analysts expect output to gradually increase early in 2016 as automakers increase production of new models. Manufacturers surveyed by the trade ministry expect to ramp up production by 0.9% in December and raise it by 6.0% in January. Meanwhile, the Bank of Japan expects the 2020 Tokyo Olympic Games to boost the world's third biggest economy by 0.2-0.2 of a percentage point on average each year until 2018, offsetting some of the pain from another sales tax increase planned in 2017. Investment on new hotels, venues and infrastructure related to the games and spending by tourists will boost Japan's gross domestic product by up to 30 trillion yen during 2015 to 2020, or roughly 6% the size of the economy.
Upcoming fundamentals: US oil reserves to continue declining
In the wake of colder temperatures across the US, analysts estimate another drop in US oil inventories of 1.8 million barrels for the week ended December 25. A week before, we had observed a retreat of almost six million barrels, even though investors had estimated an increase in the stockpiles. Any downturn is highly likely to become a great driver for oil prices on Wednesday.
Gold steadied despite rising trading volume
The yellow metal saw completely no movement in either direction on Tuesday of this week, given that traders took a pause in the run up to New Year holidays. Despite that, the volume of trading increased on Monday and Tuesday towards daily averages. XAU/USD keeps hovering below 20-day SMA and weekly PP for the moment, meaning the weekly S1 is at risk of being breached in the short-term. If a break-out below 1,065 takes place, then the attention will shift to the next demand at 1,055 (weekly S2).Daily chart
Gold prices are fluctuating around 200-hour SMA for a third day in a row. Thus, the broad outlook in the one-hour chart is unclear. A surge above the Dec 21 high at 1,081.50 or a drop below 1,065 will provide the precious metal with more pronounced impetus, but for now the market is in a wait-and-see mode.
Hourly chart
Sentiment favours bullish traders before NY holidays
While the total percentage of OANDA long positions rose from 71% to 73.2% in the last 24 hours, the SAXO Bank distribution between the longs and shorts is broadly flat at 69-31%.