- Risk-off sentiment is pushing investments into gold; more traders (58%) expect it to climb in price
- Any spike above 200-day SMA will be a confident bullish signal for the market
- Aggregate daily indicators continue trending higher today
- Economic events to watch in the next 24 hours: Spanish Unemployment Change (Jan); German Unemployment Change and Unemployment Rate (Jan); Italian Unemployment Rate (Dec); Euro zone Unemployment Rate (Dec) and PPI (Dec); FOMC Member George Speaks; Swiss Retail Sales (Dec); UK Construction PMI (Jan); New Zealand GDT Price Index (Feb 2), Employment Change, Hourly Earnings and Unemployment Rate (Q4); Australian Building Approvals and Trade Balance (Dec); Chinese Caixin Services PMI (Jan); Bank of Japan Governor Kuroda Speaks
Gold rose to the highest level in three months on Tuesday amid sluggish global manufacturing activity, which underscored challenges for the world's economy. Elevated volatility in other assets has provided additional support to the yellow metal, which could see more gains as central banks across the globe may be forced into easing monetary policy further to prop up growth. Reflecting growing confidence in bullion, holdings of SPDR Gold Trust, the world's top gold-backed exchange-traded fund, surged to 21.9 million ounces on Monday, the most since November 3.
The US manufacturing sector shrank for a fourth consecutive month in January, while employment in the sector plunged to the lowest level in more than six years. According to the Institute for Supply Management, the index for national factory activity climbed to 48.2, up from a revised December's 48.0, with any reading below the crucial 50-mark threshold indicating contraction of the sector. The new orders index rose to 51.5, up from 48.8 in December, whereas the employment index plummeted to 45.9 in January, compared with 48.0 in the prior month. A measure of exports plunged four points to 47, the lowest reading since September. Separately, US consumer spending remained flat in December, while personal income beat expectations. The Commerce Department reported that personal spending was flat following a revised November's gain of 0.5%, missing forecasts for a gain of 0.1%. Meanwhile, personal income rose by a seasonally adjusted 0.3%, surpassing expectations for a 0.2% gain and following a 0.3% increase a month earlier. At the same time, the core PCE price index was flat last month, below expectations for a gain of 0.1% and after rising 0.2% in November. The core PCE price index rose at an annualized rate of 1.4%, in line with estimates and unchanged from a month earlier. The Fed uses core PCE as a tool to help determine whether to hike or cut interest rates, with the aim of keeping inflation at a rate of 2% or below.
British manufacturing sector improved more than expected in January, supported by a steep surge in output at large manufacturers, while exports dropped. The Markit/CIPS manufacturing PMI rose to the highest level in three months of 52.9 in January, up from 52.1 in the preceding month, overshooting forecast for 51.6 as factories output soared at the fastest pace since June 2014. The performance of large-sized manufacturers was particularly positive, whereas growth was comparatively "mild" at small and medium-sized companies, the report showed. Furthermore, the sub-index tracking new orders also increased to 52.5, whereas the new export orders index stayed below the crucial 50-mark threshold and slid to the lowest level since June. There still appears to be plenty of spare capacity in many companies, with overall employment in the sector falling for the fourth time in six months. The manufacturing sector failed to add to the UK economic growth in 2015. Moreover, analysts warned that positive January's data was likely to be short-lived as the sector is predicted to experience headwinds in the coming future. The most recent report from the Confederation of British Industries showed total factory orders fell between December and January, while a less volatile quarterly gauge improved in the three months through January.
Upcoming fundamentals: Tuesday's focus on Asian markets
There are many events across the world, which have a high chance of moving commodity, equity and FX markets throughout the next 24 hours. The news flow will kick off with Euro area's unemployment numbers at 10:00 GMT, where experts see no change for the current 10.5% jobless rate. At 18:00 GMT the Kansas City Fed President Esther George will deliver an important speech about US economic outlook and monetary policy. She is a voting member of the FOMC in 2016 and is considered to be a part of the hawkish camp at the Fed. Crucial fundamentals are later going to be released in New Zealand, with labour market statistics being out at 21:45 GMT and weekly dairy prices at 14:00 GMT. Milk industry is one of the most important sectors of New Zealand's economy, meaning milk prices have a huge impact on employment, prices and GDP growth. As for neighbouring Australia, there the trade and housing data will be released at 0:30 GMT on Wednesday.
Gold takes a shot at 200-day SMA
The most significant moving average line on a 200-day time frame was touched in early November last time. Now gold has an opportunity to overcome this crucial resistance again. However, the presence of two-month uptrend, weekly R1 and upper Bollinger band makes the bullish task tougher. Downside risks are substantial, while the bears are aiming at retaking the support area near 1,100 (100/20-day SMAs; monthly PP; weekly S1; Oct 2015 low). In the meantime, a success at the mentioned closest resistance could lead to more gold purchases with an ultimate target at 1,149 (2015 downtrend).Daily chart
The bullion's dilemma is bounded between the January uptrend line near 1,130 and upward-sloping 200-hour SMA at 1,112. Still, we would allow for a short-term selloff towards the moving average, but longer-term risks remain skewed to the North.
Hourly chart