Gold Edges Lower After Fed Decision

Daily Analysis - 19/06/2017

Dollar Resurgence Sends Precious Metals Prices Close to 4-Week Low


Gold slipped on Monday amid a firmer dollar as markets await comments from a top Federal Reserve official for clues about the state of the US economy. Prices nearly reached a four-week low to last trade around $1252 per troy ounce.

Bullion Precariously Poised

New York Federal Reserve President William Dudley, considered a close ally of Chairwoman Janet Yellen, is scheduled to speak at a roundtable with local business heads in New York later today. If Dudley confirms the Federal Reserve will remain hawkish in its stance, gold is likely to fall further as markets anticipate more tightening. Higher interest rates tend to lift the Greenback, putting pressure on the non-yielding safe-haven metal.

Although the Fed hiked rates last week, weaker than expected economic data points have cast doubts over the Central Bank's ability to continue with its gradual monetary policy tightening. In the meantime, the near-term trend remains bearish, with the area between $1245 and $1250 acting as a key support level to monitor. If gold breaks below, it could tumble all the way to $1220 per troy ounce.


US Consumer Sentiment Unexpectedly Drops

Consumer sentiment in the United States recorded a surprising decline in early June, underlining concerns about the strength of consumer spending over the coming months. The closely watched University of Michigan Consumer Sentiment gauge slid to 94.5 from 97.1 in May, marking the lowest reading in 7-months.  The index had soared to 98.5 in January, the month President Trump assumed office to much fanfare.

However, when combining the recent confidence figures with the softness in inflation, there are some worrying signs for the outlook, especially as a dysfunctional government prevents movement on the policy front.  The erosion in confidence reflects increasing concerns about President Donald Trump’s ability to carry ahead with proposed economic reforms and a healthcare replacement. S&P 500 futures are currently hovering around 2436, just below strong resistance at 2450.


Japanese Exports Surge

Exports growth in Japan jumped during May to reach the fastest rate of expansion in more than two years, buoyed by larger overseas consignments of cars and steel. Exports surged 14.90% year-on-year, the biggest gain since January 2015 according to Japan's Ministry of Finance. Nevertheless, the figure came in lower than the 18.20% rise forecast by economists surveyed by The Wall Street Journal. Exports to the US rose 11.60% whereas shipments to China soared 23.90% compared to a year ago.

Exports are forecast to continue rising as major global economies display increasing signs of strength.  Even though the trade balance for May slipped into a deficit of JPY 203.40 billion, this compares positively with the JPY 47.30 billion deficit recorded a year ago. USDJPY has since reversed from key support at 110.600 to trade back above the 111.000-mark.


Russian Central Bank Trims Interest Rates

The Central Bank of Russia cut the key interest rate on Friday while pledging more monetary policy easing amid an improving economic outlook. After overcoming a significant period of economic contraction and high inflation, the bank moved to slash the benchmark rate to 9.00% from 9.25% - the third consecutive rate cut this year alone. Analysts were split between a rate cut of 25 to 50 basis points.

In its subsequent statement, the Central Bank noted that inflation, which stood at 4.10% in May, was close enough to its target level of 4.00% to allow room to ease monetary policy. The Central Bank also revised its GDP growth projections higher to 1.30%-1.80% for 2017 from the 1.00%-1.50% reported during an earlier forecast. The Ruble strengthened briefly versus the dollar following the rate decision. USDRUB is gaining in early Monday trade to currently hover around 57.7350.


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