- Distribution of open positions is steady for a fourth consecutive day (43% long - 57% short)
- All eyes on retail sales and consumer sentiment data from the US on Friday
- Thursday's surge forced the daily RSI indicator to assume that gold is becoming overbought
- Economic events to watch over the next 24 hours: German GDP (Q4) and CPI (Jan); French Non-Farm Payrolls (Q4); ECOFIN Meetings; Italian GDP (Q4); Euro zone GDP (Q4) and Industrial Production (Dec); US Retail Sales (Jan) and Reuters/UoM Consumer Confidence Index (Feb); FOMC Member Dudley Speaks
Gold's prospects for a sustained rally have become better and better as a weaker US Dollar, plunging oil prices and worries about the global economy have boosted its safe-haven status. Bullion soared 5% on Thursday, its biggest daily increase in more than seven years, as Fed Chair Janet Yellen said that the Fed is studying whether negative interest rates would help in case conditions worsen further. The yellow metal has jumped 20% so far this year to $1,260.60 an ounce, with market participants expecting bullion to trade $1,300-$1,400 in the next six to 12 months.
During the second-day testimony to Congress Fed Chairwoman Janet Yellen stressed that the US central bank was not on a "pre-set" path to normalize the monetary policy amid deteriorating meltdown in global equity markets. As recessions fears build in the US, Yellen did not excluded a "chance" of a downturn ahead. She also said that the Fed is studying whether negative interest rates would help in case conditions worsen further. The Fed had considered negative interest rates in 2010, but decided to refrain. The head of the world's most influential central bank admitted that a weakened global economy and a sharp drop in stock markets was tightening financial conditions quicker than the Fed estimated. Yet, Yellen warned against making hasty conclusions about the extent of threat from overseas to the US economy. However, Yellen still expected the Fed to gradually hike interest rates this year given resilient US labour market and steady economic growth. The recent report released by the Labor Department revealed that the number of Americans applying for unemployment benefits dropped more than expected last week. Initial claims for jobless benefits dropped 16,000 to a seasonally adjusted 269,000 for the week ended February 6, whereas economists had predicted 281,000 applications. The four-week moving average of claims fell 3,500 to 281,250 last week.
The UK retail spending growth hit the highest level in four month in January, as consumers bought more big-ticket items like furniture. The British Retail Consortium reported retail sales values jumped 3.3% last month compared with a year ago, up from a 1.0% gain in December. Furniture and home appliances were the top performers, while discounts in the New Year sakes boosted clothing and footwear sales. The report added to signs that Britons continued to spend freely, despite a gloomier global economic outlook. The Bank of England revised down its short-term outlook for both inflation and economic growth, referring to external and domestic headwinds as well as low price pressures and the major factors weighing down on the UK economy and production. A separate report showed Britain's trade deficit widened in the final quarter of 2015 amid global market turmoil and a slowdown in emerging markets that hurt British exports. The gap between exports and imports increased from 8.6 billion pounds in the September quarter to 10.4 billion pounds, sparking concerns that UK's worsening trading position would be a drag on the economy's growth this year. Moreover, the UK's goods trade shortfall with the rest of the world widened by 1.9 billion pounds to a record high of 125 billion pounds in 2015. However, 2015 saw a record surplus in the UK's dominant services sector of 90 billion pounds.
Upcoming fundamentals: US retail sales and consumer sentiment
Trading sessions will be busy in both Europe and US on Friday of this week. Gold and other commodities are likely to be volatile during the second part of the day when some US statistics is due. First of all, retail sales are forecasted to increase by only 0.1% in January, thus offsetting the same pace of decrease in the preceding month. On a core basis, however, the reading is projected to come out unchanged on a monthly basis. As for consumer sentiment published by the University of Michigan and Reuters, which is out at 15:00 GMT, this indicator is set to rise to 92.6 points in February from 92 last month. Additionally, the FOMC member and New York Fed President William Dudley will be speaking about household debt and credit at NY Fed HQ at 15:00 GMT. Audience questions are included in the agenda.
Gold soars to one-year high, hits 1,263
Gold appreciated the most since December 2014 on Thursday, by becoming $60 more expensive in just 24 hours of trading. Only the third resistance managed to contain the rally, while monthly R3/monthly R2 (1,209/13) and May 2015 high (1,232) were both easily penetrated. Trading volume is the greatest since March 2011, while Bollinger bands indicate volatility is ultra-high for the moment. Daily RSI is assuming gold is overbought, thus making a correction back below May high more likely. On the side of bulls, a spike beyond weekly R3 (1,252) should expose the January 2015 high at 1,307.Daily chart
Spread between the spot (1,242) and the 200-hour SMA (1,171) is widening in the one-hour chart. Such a case is posing downward medium-term risks for gold; however, the price development largely continues to depend on fundamentals and global market turbulence.
Hourly chart
Bullish market share is unchanged at 43%
In the meantime, sentiment has improved quite substantially on the OANDA market, as more than 56% of all their traders are now betting on gold's continuous rally. Alongside, SAXO Bank clients are broadly undecided with respect to the yellow metal. The bullish majority amounts to less than two percentage points in the morning on Friday.