Gold Edges Lower After Geopolitical Spike

Daily Analysis - 15/08/2017

Easing of North Korean Tensions Helps Risk Sentiment Improve

Gold is inching lower in Tuesday Asian trade amid an extended firming of the US dollar. The absence of any fresh flare-up in geopolitical tensions between the United States and North Korea has seen investor outflows from the safe-haven asset gradually accelerate.

Gold Closing in on Price Support

The greenback rose on Monday as investors regained appetite for risk after the US and North Korea appeared to take a break from their respective war rhetoric. Over the weekend, US Secretary of State Rex Tillerson sought to downplay the risk of a conflict, saying the Trump administration was seeking a diplomatic settlement.

Last week’s tensions helped gold notch its strongest weekly performance in four months to settle at its highest level since the first week of June. However, actions by China to impose additional sanctions on North Korea have re-established a semblance of calm, causing gold prices to retreat and pullback lower. Gold was last seen around $1275 per troy ounce, close to 2.00% below the prior week’s highs. Strong support around the $1270-mark could see buyers potentially re-enter the market if tensions remain elevated.

Euro Area Factory Output Slides

Figures released by the European statistics office Eurostat on Monday showed that industrial output in the Euro Area fell more than expected in June, hurt by a dip in production of capital and durable goods. Industrial production in the 19 countries that share the common currency fell by -0.60% on a monthly basis in June, missing the -0.50% drop forecast by a survey of economists.

The decline was the largest recorded since December of 2016. The key drivers behind the contraction was the -1.90% and -1.20% respective slump in the production of capital and durable consumer goods. In addition to the June weakness, the May figure was revised lower to a 1.20% monthly gain. Factory output dropped the most in Ireland and Malta, while Italy and the Netherlands witnessed an increase in month-over-month output. EURGBP is sliding after sitting in a narrow range, falling to near 0.9060.

Australian Central Bank Flags Housing Debt Risk

The Reserve Bank of Australia renewed its focus on mounting housing debt, even as it removed the country’s labour market from its watch list. Minutes from the Central Bank’s August meeting released overnight showed that the RBA remained confident of an uptick in inflation and jobs as it held interest rates at record lows this month. Yet, record high household debt and a strong Australian dollar were cited as key risks to the rosier outlook. Indebtedness has increased in the country as more Australians speculate in the booming property market.

The Central Bank also warned that any further rally in the local currency, which last month climbed to a 2-year peak against the US dollar, could depress consumer price growth and weigh on overall economic expansion and employment. The AUDUSD pair was last seen trending around the 0.7840 after slipping ahead of the European open.

Corn Prices Under Pressure

After a widely followed report pegged the outlook for US crop yields above market expectations, easing investors’ concerns about output losses due to a recent spell of dry weather, corn futures fell close to -1.00% in early Tuesday trade. Data from the US Department of Agriculture showed 62.00% of the standing crop was in good to excellent condition, up from 60.00% last week.

Apart from outperforming analyst estimates expecting the reading to remain unchanged, sentiment soared further after Commodity Weather Group forecast about 70.00% of US corn growing regions to receive rainfall in the coming five days. Last week, the USDA had unexpectedly lifted its estimate for this year's corn harvest to 14.20 billion bushels. Corn futures for September delivery are currently hovering around 360.00.