Gold Clears $1300

Daily Analysis - 16/10/2017

Tepid US Inflation Data Boosts Bullion Demand


Gold broke above the key psychological level of $1300 per troy ounce on Friday after the reading on core US inflation came in weaker than expected, increasing investor uncertainty about the pace of the Federal Reserve’s interest rate hikes. Bullion was holding ground early Monday to last trade around the $1304-mark.

Gold Staring at Further Upside

With Madrid threatening a curtailment of Catalonia’s autonomy if the province declares independence, gold received a boost from safe-haven buying amidst the current political turmoil in Spain. Risk sentiment also soured after Bank of Japan Governor Haruhiko Kuroda warned that investors may be underestimating the geopolitical risks that have the potential to trigger widespread financial market turbulence and put brakes on an otherwise healthy global economic recovery.

Strong demand from key consumer India ahead of the traditionally peak festive season could help provide the short-term catalyst for further upside momentum. From a technical standpoint, $1305 represents the immediate resistance, a break of which could see gold rally to $1315 an ounce. On the downside, $1298 is the key support zone, with the trend remaining upward as long as prices stay above the level.


US Inflation Surges Despite Disappointing Core Figure

A jump in gasoline prices in the wake of hurricane-induced production disruptions saw US consumer prices record their biggest gain in eight months.  Figures from the Labor Department on Friday showed that the Consumer Price Index advanced 0.50% after climbing 0.40% in August. The rise was the fastest since January and lifted the year-over-year gain in CPI inflation to 2.20% in September from 1.90% in August.

Gas prices soared 13.10%, accounting for almost 75.00% of the headline increase. Excluding food and fuel, core inflation experienced a more muted 0.10% advance, coming in below projections for the sixth time in seven months. Separately, figures published by the Commerce Department exhibited the biggest retail sales upturn in two and half years. On an annualized basis, retail sales climbed 4.40% last month compared to forecasts for 1.70% advance. USDJPY is off the highs of the session to last trade around 111.750.


Chinese Factory Prices Rebounds

Data unveiled by the National Bureau of Statistics overnight displayed a rise in industrial sector prices, helping Chinese producer inflation unexpectedly accelerate to a six-month high in September. The headline producer price index gained 6.90% last month from a year ago compared to 6.30% in August. The increase was the strongest since March and signalled continued resilience in the economy, welcome news for leaders of the Communist Party as they meet for the all-important Party Congress.

Separate data from the National Bureau of Statistics revealed the Chinese consumer price index edged 1.60% higher in September from a year earlier, matching consensus expectation. China will be reporting third-quarter GDP figures on Thursday, a day after the Communist Party Congress starts. USDCNH is currently hovering around 6.5750 with the pair locked within a narrow trading range.


Euro on the Defensive

Catalonia's ongoing confrontation with Madrid and the Austrian election sent the Euro down against most major peers in early Monday trading. Investors are focussing on Spain, where Catalonia’s leader Carles Puigdemont has until 08:00 AM GMT on Monday to spell out his immediate stance on the region's separation. Spanish Prime Minister Mariano Rajoy has set the Monday deadline for him to clarify his position, and has warned that Madrid would suspend the region’s autonomy if he opts for immediate independence.

However, the currency’s drop was limited amid heightened investor speculation that the European Central Bank will reveal a plan later in October to taper its asset purchase program. The Euro fell as much as -0.25% in Asian trade, with the EURUSD pair slipping below 1.1800.


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