- There is neither bullish nor bearish advantage; SWFX sentiment is 50/50% on Monday
- All eyes are on 1,170; by closing above here gold will start targeting 1,191 (Oct high)
- Technical indicators foresee a downward correction next week and a mixed trend on Feb 8
- Economic events to watch over the next 24 hours: German and Spanish Industrial Production (Dec); US Labour Market Conditions Index (Jan); Canadian Housing Starts (Jan) and Building Permits (Dec); Australian NAB Business Confidence Index (Jan)
Gold retreated from the highest level in three months on Monday, after US labour market report raised some doubts over prospects for a faster pace of interest rate hikes this year and pushed up the Greenback. The US economy created fewer jobs in January than expected, but rising wages and the unemployment rate at an eight-year low signalled the labour market recovery remains strong. Non-farm payrolls rose by 151,000 jobs last month, missing expectations for a 190,000 gain and following 292,000 new jobs created in December. Yet, it appeared to be enough to push the US jobless rate to 4.9%, down from 5.0%. Meanwhile, SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, reported its holdings climbed 0.70% to 698.46 tonnes on Friday from 693.62 tonnes on Thursday.
Canada's unemployment rate rose to the highest level since December 2013, as the economy lost jobs in the agriculture and manufacturing sectors. The number of jobs declined 5,700 and the unemployment rate climbed to 7.2%, up from 7.1%, according to Statistics Canada. In contrast, economists had predicted a 6,000 gain and an unchanged unemployment rate. The labour market has lost momentum over the last year as crude oil prices around $30 a barrel trigger layoffs. Unemployment has climbed from 6.6% in January 2015, and most economists say the recovery from the commodities slump will take several years to unfold. A separate report showed Canada's merchandise trade gap shrank in December as the value of car and light truck exports increased to the highest in more than a decade, a sign Loonie's weakness is boosting a long-awaited recovery. Canada's trade deficit unexpectedly contracted to C$585 million in December from C$1.59 billion in November as exports surged by a healthy 3.9%. At the same time, imports climbed 1.6% after three consecutive monthly decreases. Exports to the US, which accounts for 74.8% of Canada's global total in December, increased 2.9% while imports grew 1.3%. As a result, Canada's trade surplus with the neighbour swelled to C$3.19 billion from C$2.63 billion in November.
The Reserve Bank of Australia voiced a cautious optimism on the domestic economy in its quarterly update on monetary policy in light of global financial turmoil. However, the central bank reiterated that despite local optimism, uncertainty about China's growth prospects and the management of its economic slowdown remain a major global headwind. The RBA was confident that robust demand for jobs would persist despite slowdown in the mining sector and rising global market volatility. Furthermore, the bank admitted that the transition out of the mining boom was starting to take hold. The RBA made no significant changes to its prediction for GDP growth from its November statement, expecting the domestic economy to grow at an average pace of 2.5% in 2016 and 3% in 2017. However, the central bank predicted a persistent decline in the unemployment rate, whereas back in November the RBA said it expected the jobless rate to hold between 6.0%-6.25% over the next 12 months. Meanwhile, the official rate for December dropped to 5.8% after peaking at 6.3% during 2015. In addition, the RBA repeated the easing bias included in the recent interest rate decision when the cash rate was left unchanged at all-time low of 2%. Australia's inflation was seen to remain persistently low, providing the central bank with a greater scope for easier policy.
Upcoming fundamentals: Markets to skip Monday-Tuesday and wait for Yellen's testimony
The first two days of this trading week will bring us little information about the state of global economy, just because very few vital fundamentals are due from Europe, US or Asian countries. The market is mainly focusing on Janet Yellen's upcoming speech on Wednesday. Fed Chair will hold the traditional Humphrey-Hawkins testimony before both House and Senate committees of US Congress. Markets are willing to learn something new about the likelihood of the Fed raising interest rates in March and later in the year. Recent market turmoil has made it uncomfortable to consider four benchmark rate increases throughout 2016, even though labour market conditions remain sound.
Gold tests ability to consolidate beyond 1,170
We are observing some selling pressure for the first time in seven trading days. XAU/USD surged above and closed beyond the August high of the previous year, while surpassing the second monthly resistance at the same time. A downward correction should be capped by the weekly pivot point and Sep 2015 high at 1,156/54. In case of a riskier bearish trade, another demand is offered by the monthly R1 at 1,143. Meanwhile, in case gold consolidates above 1,170 on Monday, our attention will immediately turn to both Oct 2015 high and weekly R1 at 1,191/93.Daily chart
The bullion is playing with August high of 2015 for the moment. Positive outlook is supported by the fact that the metal breached a January uptrend, while 200-hour SMA is rapidly moving to the North as well. On the other hand, some separate attention should be paid to technical indicators that are not too optimistic on a daily time frame and are assuming gold is now overbought on a weekly basis.
Hourly chart