Gold Prices Drop on Improving Risk Sentiment

Daily Analysis - 12/09/2017

North Korean Anxiety Fades Alongside Hurricane Fears


Gold is retreating further from a 12-month high hit on Friday as investor appetite for riskier assets such as stocks and commodities began to pick up. The yellow metal ended Monday at $1327 per troy ounce, its lowest close since September 1st.

Gold Feels Dollar Heat

Bullion rallied close to 2.00% last week on concerns that North Korea was preparing to conduct another missile test over the weekend. The weekend passed without any fresh flare up, easing geo-political tensions, which in turn resulted in significant outflows from the safe-haven assets like gold. Investors were also worried about the economic impact of Hurricane Irma that made landfall in Florida on Sunday.

The hurricane has since been downgraded to a tropical storm. Ebbing worries over North Korea and the weaker-than-expected storm helped the US dollar moderately from its recent losing streak. Strength in the greenback typically puts pressure on dollar-denominated gold prices on a historical basis. XAUUSD was last seen around $1325 an ounce with $1323 representing the immediate downside support, a breach of which could see selling pressure intensify.


Canada Housing Starts Rise Unexpectedly

Figures from the Canada Mortgage and Housing Corporation released late on Monday showed that housing starts recorded surprising gains in August, as a rise in construction of multiple unit buildings more than offset a dip in ground-breaking for single homes. Seasonally adjusted, the annual pace of starts climbed to 223,232 in August from July’s upwardly revised rate of 221,974 topping the consensus forecast of a decline to 216,000.

August marked the eighth consecutive month when Canadian housing starts topped the 200,000-mark. The housing agency said multi-unit urban starts, which include condos, surged 2.70% to 145,618 units during the month, while single-detached starts dropped -3.20% to 61,906 units. Thanks to the last two rate hikes from the Bank of Canada, USDCAD remains in a strong near-term downtrend, with the pair last seen around the 1.2100 level.


Australian Business Confidence Takes a Hit

Confidence among Australian businesses fell sharply in August, according to a leading survey, with businesses indicating that cost pressures and government policy led to the deterioration. The National Australia Bank’s monthly Business Confidence Index slipped to 5 last month from 12 in July. Meanwhile, the business conditions reading touched its highest point since early 2008, rising to 15 in August from 14 in the prior month.

Employment conditions also remained strong, jumping to 11 from 7 in July. Solid activity was witnessed across most industries, while the retail sector continued to hover in negative territory. NAB Chief economist Alan Oster said it was too early to deduce much from the decline in business confidence, with external shocks such as the escalating tensions in the Korean peninsula likely having some adverse impact. After falling earlier, AUDUSD is back on the upswing to last trade around 0.8035.


Mexican Industrial Output Posts Big Drop

Recording its worst performance in over two years, Mexican industrial production unexpectedly contracted in July.  Official data released on Monday showed that on a monthly basis industrial output fell -1.00% in July, marking the biggest month-on-month drop since May of 2015. A Reuters poll of economists had projected a 0.10% expansion following the flat growth in June. Mining output sank -1.40%, while construction dipped -2.10% and utilities shrank -0.30%.

The one bright spot was factory output which edged 0.30% higher. From a year ago, industrial output was down -1.60%. Nonetheless, the Mexican Federal Government lifted its 2017 growth forecast to between 2.00% and 2.60% when it presented its annual budget on Friday after better-than-expected growth during the first half of the year. USDMXN has reversed from the strong support at 17.6250 to last trade around 17.6655.


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