Gold Steadies Near 1-Month High

Daily Analysis - 05/04/2017

Politics in Focus Following North Korean Ballistic Missile Launch

Gold prices are holding firm near a one-month high reached during the previous session amid an easing of investor risk appetite ahead of a key meeting between the leaders of the United States and China. Bullion was last seen trading around $1255 per troy ounce.

Safe-Haven Demand Resurfaces

Widely viewed as a haven asset amongst investors, gold prices found support for further upside ahead of the highly-anticipated US employment report due Friday that could set the tone for the pace of Fed rate hikes. Economists are estimating that 178,000 new jobs were created in March, with the unemployment rate likely to remain steady at 4.70%. Today’s ADP nonfarm employment figure should give some hints as to the general job creation trend.

However, the recent recovery in the US dollar and its historical inverse relationship with precious metals is capping gold’s gains. Technical analysts reckon that the current shift in sentiment should see gold rally towards $1265 - the highs for the year. Any further upside will depend on whether the bulls have the strength to push prices higher while on the downside, $1248 presents a strong floor.

US Trade Deficit Shrinks

The US trade gap dropped from a near two year high in February as global economic stability helped lift exports of American goods, while imports were hurt by the retreat in domestic demand. According to data reported by the Commerce Department late Tuesday, the trade deficit fell -9.60% to $43.6 billion. Exports increased by 0.20% to reach their highest level in over two years while imports slipped by -1.80%.

Economists were expecting the overall trade gap to fall to $44.8 billion in February. Adjusting for inflation, the deficit shrank to $59.7 billion. The politically fragile trade gap with China sharply narrowed by -26.60% on a month-on-month basis to $22.9 billion ahead of the summit level talks between President Donald Trump and China's Xi Jinping starting tomorrow. After climbing during Tuesday trade, Nasdaq futures have given back nearly all the prior session’s gains.

Eurozone Retail Sales Rise

In another sign of improving sentiment, Euro Area retail sales grew at a better than expected pace in February as shoppers spent more on clothing despite the higher inflation. Retail sales in the 19 countries that share the common currency increased by 0.70% in February on a month over month basis per data from Eurostat.

Economists polled by Reuters had forecast a 0.50% rise. On a year-over-year basis, the volume of sales grew by 1.80% in February, higher than the 1.40% increase projected by economists. Eurostat also revised its January figure higher to a positive 0.10% from -0.10%, while the yearly rate was also adjusted upwards to 1.50% from the previously announced 1.20% growth. Nevertheless, EURUSD remains stuck in a narrow trading range, with the pair last seen around 1.0670.

Japan Services PMI Hits 19-Month High

Activity in the Japanese services sector managed to expand at the fastest rate in 19-months during March as business conditions improved, allowing firms to charge more for their services. The Markit Services Purchasing Managers’ Index rose to 52.9 last month on a seasonally adjusted basis compared to the 51.3 recorded in February. The index continued to remain above the 50-mark, which separates expansion from contraction, for the sixth straight month.

The outstanding business index rose to 51.6 from 50.2 in February to report its fastest growth in 20 months. The index of business expectations also increased to 55.4 in March from 53.8 to record the fastest growth since April of 2016. The services sector accounts for almost two-thirds of Japan's GDP. As such, the latest expansion provides more support for economic activity and inflation. USDJPY is largely changed in Wednesday morning trade at around 110.700.