Gold Down From 5-Month High

Daily Analysis - 10/04/2017

Dollar Strength Halts Bullion Rally

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Gold prices are down on Monday, moving away from the 5-month high recorded in the previous session, largely due to recent strength in the U.S. dollar. However, geopolitical tensions continue to support safe-haven buying, putting a cap on the down side.

Fed Hike on Market Participants’ Radar


The surprise U.S. missile strikes on Syria that saw investors flocking to the safety of gold seem to have gone to the background, following positive US employment data that reignited speculations of a Fed rate hike. Though a headline payrolls gain at 98,000 was much below the consensus economist expectation of 180,000, the unemployment rate continued to fall, with wage inflation hovering near an eight-year high. Gold hit a 5 month peak of $1271 an ounce on Friday. However, early Monday trading saw most of those gains eroding, with the metal currently perched just above the key psychological support at $1250. On the downside, as long as $1240 is held, the short term uptrend is intact. For the rally to resume momentum, prices need first to take out Friday’s high.

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U.S. Consumer Credit Climbs


U.S. consumer credit increased more than projected last month, official data showed late on Friday. According to figures released by the Federal Reserve, consumer credit grew to a seasonally adjusted 15.2 billion in February from the revised 10.9 billion in the preceding month. Analysts were expecting a rise of 13.9 billion. Revolving credit, which reflects credit card debt, climbed by $3 billion, versus the dip of $2.7 billion posted in the previous month. The Fed said consumer credit increased by an annual pace of 4.80% in February, with revolving and non-revolving credit increasing by 3.50% and 5.30%, respectively. EURUSD is rebounding on Monday, with the pair last seen around 1.05900.

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Japan’s Current Account Surplus Gains Big


Japan's current account surplus widened by 18.20% in February from a year earlier - the biggest gap since March 2016 - finance ministry data showed on Monday. The broadest measure of the country’s gains from international investment and trade came in at 2.81 trillion yen ($25.26 billion) last month before adjusting for seasonal variations. Economists polled by Reuters had forecast a reading of around 2.62 trillion. The stronger than expected surplus figure was largely on account of exports picking up pace after the Lunar New Year slowdown. Trade balance stood at 1.1 trillion yen in February, recovering from the 853.4 billion yen deficit in January. USDJPY is seeing a mild pullback after the big Friday rally and is currently hovering around 111.350.

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Fitch Cuts South Africa Credit to “Junk”


Ratings agency Fitch has cut South Africa's credit rating to sub-investment grade, saying the recent cabinet reshuffle, which saw the widely respected finance minister dismissed will likely undermine positive economic policy changes. Fitch lowered South Africa’s foreign-currency rating to BB+, while local currency rating was downgraded one level to junk. Earlier last week, S&P Global Ratings slashed South African foreign debt to junk as well. Downgrades from the two leading ratings agencies would surely see South Africa drop out of some leading global bond indices, which in turn, could force offshore funds, prohibited from holding sub-investment grade assets, to sell. Economists also expect government debt-servicing costs to rise, leading to less money for key sectors like housing and education.  USDZAR has been stuck in a narrow trading range, with the pair sitting just above the strong support at 18.81000.

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