- Today 54% of all positions are bearish
- Downside forecasts are still on the table, but consolidation above 1,230 (20-day SMA) will improve outlook
- Daily indicators are moderately bearish, as weekly studies recommend buying gold
- Economic events to watch over the next 24 hours: German Industrial Production (Feb); US Unemployment Claims (Apr 2) and Crude Oil Inventories (Apr 1); FOMC Members Mester, Kaplan and Bullard Speak; FOMC Meeting Minutes; Canadian Ivey PMI (Mar)
Gold rose sharply on Tuesday amid soft global economic data and a decline in equities, which spurred the precious metal's safe-haven appeal. The US trade balance ballooned in February to the highest level in six months as a surge in imports exceeded a slight pickup in overseas shipments. The trade shortfall widened 2.6% to $47.1 billion from a revised $45.9 billion in January. German factory orders declined significantly in February. Measured on a monthly basis, factory orders decreased 1.2%, following January's 0.1% drop. At the same time The MSCI All-World Index lost 1.4% on Tuesday, its worst day since early February. The SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, said its holdings fell 0.28 tonnes to 815.44 tonnes on Tuesday.
Activity in China's service sector rose in March, but employment declined for the first time in over 2.5 years, sending mixed signals on the health of a sector which officials are relying on to offset prolonged weakness in manufacturing. The Caixin-Markit China Services PMI rose from 51.2 in February to 52.2 in March. The employment sub-index fell to 48.9 from 51.3, pointing to the first contraction in staffing levels since August 2013. The Caixin manufacturing PMI climbed from 48.0 in February to 13-month high of 49.7 in March, while the official manufacturing PMI, rose to a seven-month high of 50.2, unexpectedly showing an growth. Caixin's composite manufacturing and services PMI showed a return to growth in March, with the headline figure rising to 51.3 in March from 49.4 in February, helped by an unexpected improvement in the manufacturing sector. China's better-than-expected activity data suggest the economy may have turned a corner, having last year posted the weakest GDP growth rate in 25 years. Nevertheless, the composite employment figure plunged to 47.6, the lowest reading since January 2009 and the 10th consecutive month of contraction. The People's Bank of China has been easing monetary policy for some time now, while Beijing has been boosting infrastructure spending among other fiscal measures, in attempts to cushion growth.
Canada's trade deficit swelled in February more than expected amid the sharpest decline in exports in almost seven years. Canada's trade deficit grew to $1.9 billion in February, more than triple the shortfall of $628 million the month before, Statistics Canada reported. Exports plunged 5.4%, the biggest month-on-month decrease since May 2009, on a combination of lower prices and a 2.2% decline in volumes. Imports also dropped 2.6%, due to lower prices as well as a volume fall of 1.2%, reflecting that demand at home was weak in the reported month. The disappointing February trade report comes on heels of recent positive economic data. Statistics Canada reported last week gross domestic product increased 0.6% in January, the fastest pace of monthly growth since mid-2013. Before trade data, Canadian market watchers had expected first-quarter annualized growth to approach the 3% level. However, economists warn that a robust first quarter does not necessarily guarantee a positive year, as Canada continues to struggle with a sluggish growth environment. Moreover, Canada's recovery from the precipitous plunge in the price of crude oil is likely to take more than two years as the economy moves toward non-resource exports, Bank of Canada's official said.
Upcoming fundamentals: US oil reserves to grow, Fed releases minutes
Markets are forecasting another positive change to US oil inventories for the week ended the first day of April, as seasonal factors are naturally decreasing demand for heating fuel. This is unlikely to support commodity prices throughout Wednesday, but some help can be provided by weaker Greenback in the run up to the data release at 18:00 GMT. At this point of time the Federal Reserve is going to publish a fresh report about the latest FOMC meeting that took place in the middle of March. Looking back, then the US central bank left the benchmark interest rate target steady and downgraded its economic outlook. In case the dovish tone is maintained through the minutes, the Buck is expected to experience more downward pressure on valuation.
Gold closes above 1,230 as bearish risks stay
On Tuesday gold prices soared for the first time in three days, as bullish action pushed the spot beyond 1,230. The price closed slightly above it, namely the 20-day SMA, but another downside correction is highly possible today, given that daily technical indicators are short. A lot depends on the news from the Fed today. Dovishness may easily help to bullion to grow up to the next resistance at 1,241 (weekly R1/monthly PP). Contrary to that, a slide under the weekly pivot point should expose the 55-day SMA (1,209), which has got a steep upside slope and should contain a selloff.Daily chart
In case the bullion is holding to gains it managed to produce yesterday, then we are going to claim the positive outlook is back on track. In the 1H chart, the spot is now being located above the 200-hour SMA and the mid-March downtrend line. Normally, it requires two days of consolidation above the resistance to state that growth is sustainable. In this case the forecast will turn to expect a rally in the direction of the March 30 peak at 1,244.
Hourly chart
54% of traders see gold lower
In the meantime, OANDA's bullish portion has again slumped below the 60% mark to reach 59.13% by Wednesday morning. However, it is not enough to assume that there exists a major shift in favour of the bears. Adding to that, there is only a four percent positive gap between the bulls and bears who are the participants of the SAXO Bank market.