- Eight percentage points continue to divide long SWFX traders from short market participants
- Any worse-than-expected US manufacturing data may push the bullion towards 200-day SMA today
- Aggregate daily indicators are trending higher on Monday
- Economic events to watch in the next 24 hours: Euro zone Manufacturing PMI; ECB Member Coeure Speaks; ECB President Draghi Speaks; US Personal Income and Spending (Dec) and ISM Manufacturing PMI (Jan); FOMC Member Fischer Speaks; UK Manufacturing PMI (Jan); RBA Interest Rate Decision
Gold rose on Monday, extending gains following the biggest monthly increase in a year in January amid a weaker US Dollar and uncertainty over the world's economy. Holdings of the world's biggest gold-backed exchange-traded-fund, New York's SPDR Gold Trust, surged about 4% in January, the most in a year. The US economy slowed sharply in the fourth quarter, stoking concerns about its momentum in 2016. The US GDP increased at an annualized 0.7%, as lower oil prices continued to hurt investment by energy companies and unseasonably mild weather dent consumer spending on utilities and apparel. The data added to hopes that the Fed would slow pace of interest rate hikes, thereby supporting the precious metal.
Measures of China's manufacturing activity showed mixed results in January, with the official gauge falling further into negative territory, whereas the private reading strengthened. The government-compiled manufacturing purchasing managers' index dropped to 49.4 in January, down from 49.7 in December, marking the weakest result since 2012 and the sixth consecutive month in contraction territory. Sub-indexes measuring new orders, production and exports also declined, the statistics bureau reported. At the same time Caixin manufacturing PMI edged up last month, to 48.4 from 48.2 in December, but remained in contraction. In the meantime, the service industry, which has been a bright spot in the Chinese economy, also weakened, with the official non-manufacturing PMI declining to 53.5 from 54.4 in December. China's government has been trying to re-orient the economy away from investment-fuelled industrial growth towards domestic consumption. Thus, services such as real estate and health care become important for policymakers, with the services sector already accounting for half of China's gross domestic product. Data released last month showed that world's second biggest economy expanding 6.9% in 2015, the weakest growth rate in 25 years. The weakness has continued despite the government's efforts to cushion the nation's economy.
The Canadian economy grew in November amid an increase in oil and gas extraction, as well as robust wholesale and retail trade, Statistics Canada reported. Canada's gross domestic economy rose 0.3% in the reported month, marking the first growth in three months. The nation's GDP was flat in October, and declined 0.5% in September. Oil and gas extraction soared 2.1%, recovering from a slump in September and anaemic growth in October following production problems and maintenance shutdowns. Retail trade increased 1.2% with gains in nearly all of the trade groups, while the wholesale trade segment climbed for the first time in five months, rising 1.3%, amid increased demand for building materials and supplies. When measured on an annual basis, the Canadian economy climbed 0.2%. The positive monthly advance is projected to be short-lived, with the fourth quarter numbers likely to stall. Earlier in January, the Bank of Canada downwardly revised 2015 fourth quarter growth to 0% from 1.5% on a yearly basis. The BoC significantly revised down other quarters as well: 2016 Q1 has been lowered to 1%, while 2016 Q2 is now predicted at 2.2% instead of 2.5%. Overall, Canada's economy is estimated to expand just 1.5% in 2016 and 2.5% in 2017. As a result, Canada is unlikely to close the output gap until the end of 2017.
Upcoming fundamentals: ISM PMI to stay in the contraction territory
US economic calendar is busy this Monday, with first data coming out at 13:30 GMT. US personal spending is set to grow by only 0.1% in December on a monthly basis, down from a 0.3% advance in the preceding month. Alongside, personal income will also see a fading pace of increase of 0.2% in the last month of 2015. Nevertheless, markets are paying much more attention to the Institute for Supply Management's manufacturing PMI indicator at 15:00 GMT. Activity in the production sector of the world's largest economy has faced a decline in recent months on the back of strong US Dollar and weaker demand for American goods abroad. Analysts estimate the reading at 48.5 points for January, up from 48.2 points in December. However, the indicator below 50 points assumes that conditions are worsening, not improving.
Gold to hover between 1,105 and 1,130
Two formidable technical areas are highly likely to put both upside and downside pressure on gold at the same time. Support is located around 1,100/05, represented by 100/20-day SMA, monthly PP, weekly S1 and Oct/Sep 2015 lows. Any possible slide below here will see sentiment deteriorating, and new targets will be set at 1,080 (55-day SMA/monthly S1). The first and foremost supply is represented by 200-day SMA and upper Bollinger band at 1,129/30. They are immediately followed by weekly R1, and a spike above them will proclaim a break-out from the bullish pattern.Daily chart
Bearish traders have a much tougher task in front of them. In the one-hour chart they are exposed to 200-hour SMA, which is trending to the upside and is followed by various support lines in the range between 1,104 and 1,085. The risks are skewed to the upside and we expect the Dec-Jan uptrend (1,129) to be tested soon.
Hourly chart