- 57% of all SWFX positions are short, down from 67% yesterday
- Long traders keep setting eye on 2015 high at 1,307.06 where heavier bearish impetus is expected
- Daily technical indicators are no longer giving signals to buy gold, as they became mixed
- Economic events to watch over the next 24 hours: FOMC Members Mester and Lockhart speak; UK Manufacturing PMI (Apr); New Zealand Global Dairy Prices (May 3) and Unemployment Rate (Q1); Bank of Canada Governor Poloz Speaks
Gold continued to trade not far from a 15-month high, supported by the US Dollar weakness and as assets of the biggest bullion fund increase to the highest level in more than two years. The US manufacturing sector expanded at a more moderate pace in April, partly due to a slowdown in new orders, but an increase in export orders to the highest level in more than a year offered hope for the sector. Also supporting the precious metal was the precipitous rise in money flowing into SPDR Gold Trust, the world's largest gold-backed exchange-traded fund. Assets surged 2.59% to 824.94 tonnes on Monday, the biggest gain since Feb 22. Holdings are at their highest since December 2013.
The US manufacturing sector expanded at a more moderate pace in April, partly due to a slowdown in new orders, but an increase in export orders to the highest level in more than a year offered hope for the sector. The Institute for Supply Management reported its index of factory activity slid to 50.8 last month, down from 51.8 in March. Despite the decline, April marked the second consecutive month of expansion and was the second highest reading in the last eight months. The US manufacturing sector has been struggling due to a strong US Dollar and moribund global demand. In addition to that, lower oil prices have derailed manufacturers tied to the energy industry. Separately, the Commerce Department reported construction spending rose 0.3% in March to its highest level since October 2007, following an upwardly revised 1.0% gain in February. The US economic growth slowed to a 0.5% annualized rate in the first three months of the year. The revised February construction spending figures appeared to be much higher those used in the advance first-quarter GDP estimate. Economists predict GDP growth for the first three months of the year will be revised up to a 0.7% rate. Given a fairly strong labour market, which is anticipated to underpin tepid consumer spending, economists expect gross domestic product growth to rebound in the second quarter.
Activity in China's manufacturing sector unexpectedly dropped further in April, fuelling doubts about whether Beijing's stimulus measures can sustain growth in the world's second-largest economy. The Caixin Manufacturing Purchasing Managers' Index slipped to 49.4 in April from 49.7 in March. This was the 14th month the index remained below 50, signalling contraction. According to the National Bureau of Statistics, the official Purchasing Managers' Index climbed to 50.1 in April, easing from March's 50.2 and slightly above the 50-point mark that separates expansion in activity from contraction. Despite the weaker data, economists argue Beijing is unlikely to ease monetary policy in the near term given concerns over rising corporate-debt levels and because the official PMI remains in expansionary territory. Corporate debt is now around 160% of gross domestic product, up from 98% in 2008, according to estimates by Standard & Poor's Financial Services. Beijing's recent attempts to boost the economy, including strong credit expansion and a front-loading of 2016 infrastructure budgets early this year, b first-quarter growth to 6.7% in line with the government's 6.5-7.0% target range for 2016. Economists expect that the trend will continue to slow to 6.5% in 2016 and 6.2% in 2017-2018.
Upcoming fundamentals: UK manufacturing to develop slowly in April
The first important data release to be published on Tuesday is going to be about activity in the UK production sector in April. The PMI indicator is forecasted at 51.2 points, up from 51 in the preceding month. New Zealand's statistical data will start kicking off at 14:00, firstly with the global dairy price figures for the period until May 3. Alongside, labour market numbers will be due at 22:45 GMT. The jobless rate is expected to surge up to the 5.5% level in Q1 2016, up from 5.3% in Q4 2015.
Gold at risk of losing steam as 1,300 mark fails
The winning streak of gold futures tried to extend as far as 1,304 on Monday, but the bears regained momentum by the end of US trading and closed the spot below the vital 1,300 mark. The closest daily resistance is the upper Bollinger band again, placed at 1,295.73. Although the 2015 peak at 1,307.06 will remain the key target level for the bulls in the nearest future, there are growing risks the goal will not be accomplished. On top of that, the aggregate daily technical signal is currently mixed.Daily chart
The 1H chart indicates that there is only one short-term resistance to watch, namely the 2015 high at 1,307.06. Likelihood of a continuous rally remains uplifted, given that the yellow metal keeps hovering above the April uptrend with the market price of 1,293.05 at the moment of writing.
Hourly chart
Inability to build further ground sends bearish market portion down
OANDA's bullish market portion stabilised at 52.38% by Tuesday morning, which is the multi-month low for them. In the meantime, SAXO Bank clients are holding short positions on the precious metal in more than 58% of all cases this Tuesday morning.