Gold Hit by Dollar Recovery

Daily Analysis - 04/07/2017

Bullion Prices Touch 7-Week Low on Resurgent Greenback

Gold prices fell the most since December of last year as gains in the US dollar dented demand for the safe-haven asset. The metal was last seen trending around the $1225-mark, mounting a small bounce after reaching a 7-week low of $1218 per troy ounce a session prior.

Gold’s Safe-Haven Appeal Eroded

The US dollar managed to advance against a basket of major currencies alongside rising equity valuations for a second session, while the yield on 10-Year US Treasury note touched the highest point since May 16^th. Investor fears that central banks in the US and Europe are increasingly shifting towards a more hawkish posture has pushed yields higher, which decreases the demand for non-interest bearing gold and other risk aversion assets.

June and July are typically seen as middling months for bullion, with the spot metal rising by an average of 1.00% between 2007 and 2016. On the daily chart, gold is currently exhibiting strong support around $1210 per troy ounce. However, considering the more bearish backdrop and the intermediate term trend downwards, any break below $1210 could see prices continue to decline towards $1180.

US Construction Spending Remains Unchanged

Construction spending in the United States unexpectedly flattened in May even though Federal Government construction outlays were the highest in over four years. Construction spending came in unchanged at $1.23 trillion according to a report released by the Commerce Department on Monday, below the 0.30% growth projected by economists. April’s spending was revised to show a modestly improved -0.70% contraction compared to the -1.40% drop initially calculated.

From a year ago, construction spending rose 4.50%. Separately, the Institute for Supply Management announced its index of national factory activity soared to 57.8 in June from May’s 54.9 to record its best performance since August of 2014. Alongside the dollar uptick, the Dow futures rallied to a two-week high on Monday with futures holding ground around 21420 in Tuesday morning trade.

Eurozone Manufacturing Activity Records Impressive Growth

Factory activity in the Euro Area ended the first half of 2017 by accelerating to its fastest rate of expansion in more than six years as rising prices failed to weaken orders. The IHS Markit's Manufacturing PMI unveiled on Monday for the common currency area increased to 57.4 in June from a May reading of 57.0. Last month’s figure was the highest since April 2011, and easily surpassed the 50-mark that separates growth from contraction.

What was even more important from an investor standpoint was that new orders grew at their fastest pace since early 2011. When accompanied by the recent depletion of raw materials at factories, the figures suggest the growth momentum is likely to continue into the second half of the year. EURUSD is flat early Tuesday, trading just above the key support at 1.1350.

Australian Retail Sales Grow

Australian retail sales increased for a second consecutive month in May, buoyed by higher spending on household goods. Data from the Australian Bureau of Statistics disclosed overnight showed that sales activity rose 0.60% from a month earlier, outpacing the 0.20% rise forecast by economists but not enough to match the 1.00% gain recorded back in April. The Reserve Bank of Australia has been closely monitoring consumer sentiment as record low wages, surging household debt and softness in the job market have weighed on spending.

As a result, they deferred from taking any action on interest rates overnight, leaving the benchmark at a record low 1.50% for close to a year. However, recent data has proved to be more upbeat, with a leading private-sector survey released earlier indicating that consumer confidence climbed back to the highest levels since April. Meanwhile, AUDJPY is tumbling in Tuesday morning trade, falling beneath 86.000.