Gold Recovers From 2-Week Low

Daily Analysis - 24/10/2017

Softer Dollar Boosts Bullion Demand

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Gold rebounded from a 2-week trough in Tuesday Asian trade, buoyed by a weaker greenback and speculation surrounding the forthcoming Federal Reserve Chair nominee. A bout of profit-booking in US equities ahead of some key third quarter earnings reports also helped support the yellow metal before coming under pressure overnight.

Gold Relief Rally is Precariously Poised


The current trading week kicked-off positively for the US and equity markets, prompting dollar-denominated gold to lose investor favour. A recent forecast of economists polled by Reuters indicates that the Federal Reserve will hike interest rates in December and twice next year, echoing the current expectations of Federal Funds futures as tracked by CME Group. Gold is highly sensitive to any increase in US rates, which lifts the opportunity cost of holding the non-yielding bullion. Gold prices were also feeling the heat of bullish greenback outlook after Japanese Prime Minister Shinzo Abe's weekend election victory raised the prospect of an extension of ultra-loose monetary policy. XAUUSD was last seen trending around $1281 per troy ounce. From a technical standpoint, $1284 represents the immediate resistance, a breach of which could see prices climb to $1290 an ounce. However, the short-term trend in the metal continues to remain bearish.

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UK Manufacturers Turn More Pessimistic


A more pessimistic outlook sparked by Brexit negotiations saw sentiment among British manufacturers sour during the three months to October.  Data from the Confederation of British Industry’s monthly survey on business conditions released on Monday showed that 12.00% of firms were more optimistic about the “general business situation” compared to the prior three-month period.  Meanwhile 24.00% of reporting firms indicated that they were less optimistic. Further deteriorating the outlook was the factory order book balance, which unexpectedly tumbled to -2 in October compared to the 7 recorded a month earlier and its lowest point since November of 2016. The consensus forecast of economists was anticipating a rise to 9. Output expectations sank to 19 from 28 in September while the export orders component grew at its weakest pace since July. FTSE 100 futures fell -0.50% to end Monday at 7470 before reversing higher overnight.

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Japanese Manufacturing Outlook Slips


An easing in output and new orders growth were the key drivers behind the more sluggish expansion in Japan’s manufacturing during October. On a seasonally adjusted basis, the preliminary Markit - Nikkei Japan Flash Manufacturing PMI fell to 52.5 this month from a final reading of 52.9 in September. Nonetheless, despite the pullback in activity, the index managed to stay above the 50-threshold that separates growth from contraction for the 14th-straight month. The flash index for output dropped to a preliminary 52.6 from a final 53.2 a month earlier. The new orders component also slipped, falling to 52.4 from 53.4 in September. Recent data from the country has signalled a marginal slowdown in industrial output and exports, but economists remain optimistic that rising business investments should keep growth on track. EURJPY has rebounded from key support at 133.000 to currently hover around 133.550.

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New Zealand Dollar Under Pressure on Policy Announcement


The Kiwi dollar touched a 5-month low against the greenback on Monday following incoming Prime Minister Jacinda Adern and Deputy Prime Minister-designate Winston Peters inking a coalition deal in Wellington. The currency pair remained under pressure in early Tuesday trade after Adern’s Labour party laid out its left leaning priorities. The policies, which include raising the minimum wage limit and expanding the mandate of the Central Bank to include foreign exchange rate controls, are broadly seen as unfriendly to foreign investors, and could turn out to be a net negative for the New Zealand dollar considering the country runs a current account deficit. The NZDUSD pair resumed its recent tumble in early Tuesday trade, slipping below Monday’s lows and sliding to 0.6925 before rising back from the intraday price trough.

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