Gold Holding Ground

Daily Analysis - 22/05/2017

Haven Demand Remains Strong Amid Heightened Global Risks

Gold prices are holding their ground on Monday following significant gains on Friday. Between the growing sense of political and economic uncertainty in the US, the increased appeal of safe-haven assets has seen the selloff in the US dollar continue.

Precious Metals Bears Retreating

Gold has risen amid allegations that US President Donald Trump had asked Federal Bureau of Investigation Director James Comey to end his agency’s probe of Michael Flynn, the former National Security Advisor. Trump sacked Comey on May 9th, and is yet to issue any denials, which has increased investor concerns about his ability to implement his ambitious economic plans. Considering the challenges posed by healthcare, the probability of tax reform before the end of the year has been severely diminished.

Furthermore, a successful ballistic missile test in North Korea over the weekend has once again stirred tensions in the region. The dollar is struggling to remain above six-month lows as investors assesses the impact of the turmoil in the US. Gold was last seen around $1254.00 an ounce. A convincing break above resistance at $1258.00 could see prices rally to $1265.00, which coincides with last week’s highs.

Euro Zone Consumer Confidence at Decade High

A leading measure of consumer confidence in the Euro Area reached its best level in a decade following the victory of the centrist Emmanuel Macron in France's Presidential Election. The European Commission reported its latest measure of consumer confidence across the common currency block on Friday, gaining to -3.3 in May from -3.6 in April, marking the highest level since July of 2007.

Despite the prevalence of relatively high inflation, the survey results show confidence among European households is strong amid a dip in unemployment, which has fallen to its lowest point in eight years. With the populists defeated in the French election and Germany’s September polls looking increasingly likely to result in an Angela Merkel victory, political uncertainty in the region has also receded significantly. In the meantime, amid a temporary dollar bounce, EURDUSD is back below 1.1200 in early trade.

Japanese Export Growth Endures

Data from the Ministry of Finance unveiled overnight showed that Japanese exports grew in April to record their fifth straight month of gains. On a year-on-year basis, exports rose 7.50% last month, following a 12.00% surge in March. The increase was slightly below the 8.20% increase forecast by economists.

Exports to China, the country’s largest trading partner, jumped 14.80% to a record April high of JPY 1.19 trillion while exports to the US edged 2.60% higher from a year earlier. Notably, Japan's trade surplus with the US contracted -4.20% to JPY 586.7 billion in April. The recent strength in exports has played a key role in Japan’s most recent moderate, but stable growth. In the first three months of 2017, the economy grew at an annualized 2.20% pace. USDJPY had been stuck in a narrow trading range since the weekly reopening before dipping back below 111.500.

Canada Retail Activity Improves

Canadians lifted their spending in March to help propel a rebound in retail sales after a disappointing February result. Retail sales increased 0.70% month-on-month in March, versus the -0.40% decline recorded a month prior according to data from Statistics Canada. Besides easily beating the consensus market expectation of a 0.30% gain, much of the gain was driven by strong demand for new and used cars.

However, despite the optimism, rising anxiety about a looming auto bubble in Canada’s southern neighbour could spill over in coming months. Separately, Canada's annual inflation rate held steady at 1.60% in April, narrowly missing analysts' forecasts of an uptick to 1.70%. The Bank of Canada is scheduled to meet this week, and is widely expected to keep rates on hold at 0.50%. The USDCAD pair is largely unchanged early Monday around 1.3530, just above a one month low reached back on Friday.