- There are more bearish market participants who entered the SWFX market (46% now vs 45% yesterday)
- November-December downtrend to be a key mid-term driver for gold
- Daily technical indicators are proposing buying gold in the next 24 hours
- Economic events to watch in the next 24 hours: US Goods Trade Balance (Nov) and CB Consumer Confidence (Dec)
Gold recovered on Tuesday as market participants weighed the pace at which the Fed may hike interest rates next year. The precious metal is heading for a third annual drop as expectations for tighter monetary policy in the US sap demand for bullion. Assets of SPDR Gold Trust, the top gold-backed exchange-traded fund, declined 0.18% to 643.56 tonnes on Monday, close to a seven-year low.
Japan's retail sales declined 1.0% in November from October, marking the first drop in two months, reflecting weak sales of winter clothing due to relatively warm weather and a decrease in fuel sales due to lower gasoline prices. Economists, however, had predicted a 0.6% decrease. A separate data showed household spending suffered the biggest annual decline in eight months, falling 2.9% in November from a year earlier. The BOJ has signalled readiness to expand stimulus if risks threaten Japan's recovery prospects. While weak emerging market demand dims the export outlook, analysts expect output to gradually increase early in 2016 as automakers increase production of new models. Manufacturers surveyed by the trade ministry expect to ramp up production by 0.9% in December and raise it by 6.0% in January. Meanwhile, the Bank of Japan expects the 2020 Tokyo Olympic Games to boost the world's third biggest economy by 0.2-0.2 of a percentage point on average each year until 2018, offsetting some of the pain from another sales tax increase planned in 2017. Investment on new hotels, venues and infrastructure related to the games and spending by tourists will boost Japan's gross domestic product by up to 30 trillion yen during 2015 to 2020, or roughly 6% the size of the economy.
The number of Americans applying for unemployment benefits declined more than expected last week, adding to signs labour market conditions continued to tighten. Initial claims for jobless benefits decreased 5,000 to a seasonally adjusted 267,000 in the week ended December 19, near levels last seen in late 1973, according to the Labor Department. Economists had projected claims falling to 270,000. Claims have been below 300,000, a threshold associated with a strong labour market, for 42 weeks in a row, the longest stretch since the early 1970s. The four-week moving average of claims, considered a better measure of labour market trends as it irons out week-to-week volatility, climbed 1,750 to 272,500 last week. The report also showed the number of people still receiving benefits after an initial week of aid dropped 47,000 to 2.20 million in the week ended Dec. 12. The four-week moving average of the so-called continuing claims rose 10,000 to 2.21 million. Improvements in the labour market is helping to boost consumer spending, supporting the world's biggest economy as it faces the headwinds of a strong Dollar, slowing global growth, spending cuts by energy firms and an inventory overhang. The US jobless rate was at 5.0% last month, the lowest level in more than seven years.
Upcoming fundamentals: US consumer sentiment to be revised upwards
The Conference Board's consumer confidence index for the world's biggest economy is due to be released at 15:00 GMT on Tuesday. Economists forecast a positive revision from 90.4 points to 93.9 points, while an optimistic surprise can become the only fundamental driver for both FX and commodity markets in the next 24 hours of pre-New Year trading.
Gold holds under a monthly trend-line
The bullion decided to respect a downward trend-line, which connects November and December highs and is currently placed at 1,077. XAU/USD also dipped below the weekly pivot point and 20-day SMA, but in the Asian session on Tuesday it seems to be coming back. Without any shocks, we estimate the trading to be light in the run up to New Year holidays. The downtrend should remain an important anchor for gold in the mid-term, meaning our future expectations are still more bearish than bullish.Daily chart
In spite of testing the 200-hour SMA on Monday, the yellow metal is successfully growing today. While ignoring this technical level (1,070), gold is prepared to show little turbulence in the next 24 hours of trading. Low market liquidity, however, is favouring speculative traders who will attempt to create more price action.
Hourly chart
Sentiment worsened as New Year is looming
Alongside, the share of OANDA bullish transactions is broadly unchanged at 71.4% at the moment. SAXO Bank sentiment is also fluctuating around 70% for the bulls, while the bears are in a deep minority of just 30%.