- The gap between long-short open positions expanded marginally up to eight pp from yesterday
- Within the bullish pattern a decline down to 1,088 remains a possibility in the medium-term
- Daily technical studies are bullish on gold today, while weekly ones estimate a sideways trend
- Economic events to watch in the next 24 hours: French GDP (Q4) and CPI (Jan); German Retail Sales (Dec); Spanish GDP (Q4); Euro zone CPI (Jan); US Advance GDP (Q4), Chicago PMI (Jan) and Reuters/Michigan Consumer Sentiment Index (Jan); FOMC Member Williams Speaks; Swiss KOF Leading Indicator (Jan); Canadian GDP (Nov)
Gold steadied on Friday following recent gains that brought the precious metal to its highest level since November, keeping it on track to end January with the strongest monthly increase in a year. The metal received a strong support after the Fed fuelled expectations that it may refrain from hiking rates again as soon as March. Investors are awaiting US fourth-quarter gross domestic product data later in the day, with economists predicting a 0.8% growth in the October-December period, after a 2.0% expansion in the preceding quarter. Meanwhile, a recent data showed new orders for US durable goods recorded their biggest decline in 16 months in December, reinforcing the view that growth in the world's number one economy slowed sharply at the end of 2015.
Orders to US factories for long-lasting manufactured goods plunged in December, with a key category that is proxy for business investment plans declining for a second consecutive month, increasing the risk of negative fourth quarter GDP surprise. According to the Commerce Department, durable goods orders plummeted 5.1% in the reported month after the 0.5% decrease in November. Durable goods orders have declined in four of the past five months, reflecting the pressures Americans manufacturers experience due to a strong US Dollar and global economic weakness. The category that tracks business investment plans plunged 4.3% last month following a 1.1% decrease in November. A separate report showed applications for unemployment benefits dropped last week from a six-month high, indicating the labour market recovery remains intact despite a steep stock market sell-off and signs the US economy has lost some momentum. Initial claims for unemployment benefits declined to a seasonally adjusted 278,000 in the week ended January 23, down from 294,000 in the preceding week. The four-week moving average, a less volatile measure, fell to 283,000 last week from 285,250. Since early March last year claims have remained below the 300,000 level, which is typically associated with an improving job market.
The Bank of Japan surprised markets with a negative benchmark interest rate, a move aimed at boosting a faltering recovery in the world's third biggest economy in light of elevated volatility on financial markets and slowing global growth. In a 5-4 vote, the BoJ's policy makers decided to charge a 0.1% interest on current accounts that some commercial banks hold with it. The central bank hopes that the move will encourage banks to lend more and stimulate investment and growth. The BoJ said that it would divide bank's deposits into three tiers, with categories earning positive, zero and negative interest rates. The policy would continue as long as needed to achieve its inflation target. Meanwhile, the central bank pushed back its timeframe for reaching the goal from late 2016 to mid-2017. The BoJ kept its pledge to expand base money at an annual pace of 80 trillion yen through aggressive purchases of Japanese government bonds and risky assets conducted under its QQE programme. The surprise interest rate decision came in light of data that showed household spending and output fell in December, signalling further the fragile nature of Japan's recovery. Industrial production dropped 1.4% on month in December, while on an annual basis industrial output was 1.6% lower. At the same time, spending by households plummeted 4.4% on year last month, compared with the 2.3% decline expected by analysts.
Upcoming fundamentals: US economic growth is first in line by level of importance today
There are several economic indicators awaiting their time to be published throughout Friday. Speaking about American market session, the data flow will kick off with fourth quarter economic expansion numbers. Analysts assume the world's largest economy added only 0.8% in October-December after an increase of 2% in the preceding quarter. This is going to be the first estimate out of three, meaning numbers will be a subject to revisions later next month. Alongside, Chicago PMI will be out at 14:45 GMT and markets foresee a mild improvement in the reading up to 45.3 points in January from 42.9 in December. Still, any indicator below 50 points assumes that conditions are getting worse. Federal Reserve Bank of San Francisco President John Williams will give a speech today at 20:30 GMT. He will talk about economic forecasts. Williams is not a voting member of the FOMC this year.
Gold muted before US growth numbers
Thursday saw gold prices depreciating on the back of increasing risk appetite across the board. After the bullion met a tough resistance near 1,127 it started to lose value and closed near 1,115 by yesterday evening. On Friday the metal is largely unchanged despite some initial volatility in the Asian session. Markets are waiting for US GDP statistics, where a disappointment could reverse markets back to the North. The bulls continue aiming at monthly R3 and 200-day SMA around 1,127/30 and today their ideas are shared by daily technical indicators.Daily chart
In the 1H chart we see the prices dropping from the long-term December-January uptrend. In case the metal continues to fluctuate within the pattern, then 1H traders can assume that gold will eventually slump to 1,085 to meet another two-month uptrend. However, the first support to encounter is represented by 200-hour SMA and October 2015 low at 1,105.
Hourly chart