Chinese Equity Sell-Off Lifts Bullion Demand

Daily Analysis - 28/11/2017

Gold Eyes $1,300 as Troublesome Chinese Outlook Hurts Risk Sentiment

Gold prices touched a six-week high on Monday amid jitters in Chinese financial markets that left investors piling into the haven asset. The yellow metal was also boosted by weakness in the US dollar, as markets braced for the restart of deliberations on the much-touted US tax plan.

Gold on Course for Best Year Since 2010

Gold prices have rallied close to 13.00% since the start of the year, as heightened geopolitical uncertainty underpins demand. Persistent divisions among Federal Reserve policymakers over the trajectory of interest rates and monetary measures have also boosted the appeal for the non-interest-bearing asset. Tuesday’s testimony to the US Congress from Fed Chair Nominee Jerome Powell could result in a spike in bullion volatility depending on his views towards shaping policy.

Minutes from the Central Bank’s most recent monetary policy meeting showed that some officials were concerned about the inflation outlook. Also on tap this week is the Senate tax bill, which is staring at a marathon debate as Republicans hope to hold a floor vote as early as Thursday. XAUUSD hit an intra-session high of $1299.20 per troy ounce on Monday before retracing to finish above the $1294.00-mark before pulling back further overnight.

US New Home Sales Scale Decade High

Robust demand from across the country saw purchases of new single-family homes in the United States unexpectedly surge in October to their highest level in 10 years. According to figures from the Commerce Department, new-home sales jumped 6.20% to a seasonally adjusted annual pace of 685,000 units last month, following September's downwardly revised rate of 645,000 units.

Apart from topping economist estimates projecting a sales drop of -6.40% to 624,000, October’s growth was largely driven by increased sales in the Northeast and Midwest, with the Northeast notching a 30.20% climb and the Midwest clocking a 17.90% gain. Although September’s pace of gains was revised lower, October saw prices reached a fresh record, with new home prices exceeding $400,000 on average. Dow futures hit all-time highs of 23,615 on Monday, buoyed by gains in retail stocks as holiday shopping results trickle in.

Wheat Futures Sink to 3-Month Low

Wheat futures for December delivery fell for the third straight session to close Monday at their lowest level since August 30th, pressured in large part by lacklustre US export figures. The Department of Agriculture announced late Friday that US exporters sold 200,500 metric tonnes of wheat during the week ended November 16th, widely trailing market estimates.

Wheat prices have been sliding since the second half of the year amidst steady erosion in US share of the global market and higher production from largest global exporter Russia. US farmers planted less wheat in 2017, which analysts reckon could further worsen the outlook for exporters. December-dated wheat futures fell -1.50% to end Monday at $4.09 a bushel. Tumbling wheat prices weighed heavily on corn futures too, as a large portion of investors shifted their money out of the grain sector.

Rising Oil Imports Swell Mexico’s Trade Deficit

Mexico’s trade shortfall ballooned to $2.07 billion in October, more than double the deficit recorded a year ago as a bigger than expected jump in petroleum imports more than offset gains in outbound shipments of manufactured goods. Figures published by the Federal Statistical Office on Monday revealed that on an annualized basis, exports grew 13.20% last month to $36.90 billion while imports soared 16.30% to $38.97 billion.

The recent run-up in crude oil prices had an impact on petroleum imports, including diesel, gasoline and natural gas, which surged 40.10% to $4.08 billion. The October tally brought the trade deficit during the first ten months of 2017 to $11.12 billion. With the North American Free Trade Agreement talks ongoing, investors have become particularly sensitive to fluctuations in Mexico’s trade data. USDMXN sharply rebounded from the lows of the previous session to finish Monday at 18.5620 before gaining modestly overnight.