Gold Nears 1-Month High Amid Resurgent Risk Factors

Daily Analysis - 29/05/2017

Notable Uptick in Global Risk Factors Spurs-Safe Haven Demand

Gold is holding close to its highest in four weeks in early Monday trade after surging almost 1.00% in the previous session. A significant climb in geopolitical tensions over the weekend after another Korean missile launch and lacking G-7 consensus is readily boosting demand for risk-aversion assets like bullion.

North Korea Ballistic Missile Launch Supports Gold Prices

Risk aversion remains a dominant force in financial markets after North Korea fired a short range ballistic missile overnight, defying global pressure and threats of stricter sanctions. Japan immediately lodged a protest, claiming the missile landed in the country’s exclusive economic zone. This latest provocation comes on the heels of the US sending a third aircraft carrier group towards the Korean Peninsula.

Despite the growing risks of a geopolitical showdown, the precious metal is flat on the session as the US dollar trends slightly higher on the session. Gold has now gained over 4.00% since hitting an eight-week trough of $1,213.80 on May 9^th, with hedge funds managers increasing net long positions in COMEX gold during the week ended May 23^rd, according to CFTC data. Gold was last trading close to $1267.25 per troy ounce with the short-term trend remaining upward while support at $1264.00 stays intact.

US Durable Goods Orders Slip Lower

Orders for plants, property, equipment, and other long-lasting goods dropped for the first time in five months in April, indicating the resurgence in the US manufacturing space has not entirely solidified. Government data announced on Friday showed that durable goods orders fell -0.70% last month, hurt by weakness in most key heavy industry segments. The consensus forecast had projected a -1.20% dip in orders, with the headline figure surprisingly beating estimates.

Bookings for large commercial aircrafts slid -9.20% after recording a double-digit percentage growth in March. However, orders for new autos edged 0.30% higher after sharply declining a month earlier. Core capital-goods orders, an important measure of business investment that strips away the more volatile transportation component, remained flat for the second straight month. S&P 500 futures are trading modestly higher early in the session, remaining above the key psychological level of 2400.

FTSE 100 Reaches Fresh High

The United Kingdom’s FTSE 100 equity benchmark rallied to a new record on Friday as the British Pound tumbled to a one-month low following an opinion poll that showed the lead of the ruling Conservative Party narrowing ahead of the country’s general election scheduled for June 8^th. The latest poll by YouGov for The Times newspaper, conducted after Monday's Manchester bombing, showed Prime Minister Theresa May’s Conservative Party leading by a mere 5 percentage points over the Labour Party.

The weaker Sterling lifted the FTSE 100, as a majority of the index’s multinational companies depend on overseas sales in foreign-denominated currencies. The FTSE 100 rose 0.40% to close Friday at 7,547.63. FTSE 100 futures have also mirrored the bullish momentum in the index, closing out last week on a high note near 7530.

Canada Budget Deficit Match Expectations

In a development that largely matched government projections, Canada recorded a preliminary budgetary deficit of CAD$ 21.85 billion ($16.3 billion) for fiscal year 2016-17. The deficit was significantly wider than the CAD$ 1.96 billion reported during the previous fiscal year, as program expenses soared amid a revamped children's benefit and other fiscal spending measures. However, the Finance Department was quick to highlight that the figures were not final considering tax revenues could still be adjusted.

The latest annualized Canadian deficit marked the biggest budget shortfall since 2013 as weak commodity prices continue to weigh on economic activity and revenue collection. For the month of March, Canada posted a budget deficit of CAD$ 10.39 billion compared to the CAD$ 9.44 billion surplus recorded a year earlier. USDCAD is gaining in early trade, with the pair currently hovering around 1.3460.