Gold Swings to 2-Week High

Daily Analysis - 20/03/2017

Weak Dollar Fuels Precious Metals Inflows


Gold prices hit a 2-week high on Monday amidst the weakness in the US dollar, which held near a 5-week low, as investors continue to factor in the ramifications of the Federal Reserve's more conservative guidance on the pace of interest rate hikes for the remainder of the year.

Majority of Hedge Funds on the Wrong Side of Gold Trade

The latest jump in gold prices could be purely a technical bounce as traders, who were anticipating a much more hawkish tone from the Fed, were forced to cover their bearish positions, leading to a short covering rally. Federal Reserve Chair Janet Yellen’s hints of a slower, more gradual pace of rate increases also seems to have caught hedge fund managers by surprise.

Data showed that money managers had slashed their net long positions in gold futures by 44,058 lots to 49,835 lots for the week ending March 14th, the lowest total since January. Technical analysts expect spot gold to face resistance first at $1,237 per troy ounce, with a break above seeing prices potential gain ground towards $1,243. In the meantime, spot gold is currently trading just above $1233 per troy ounce.


China Home Price Gains Continue to Taper

Despite new home prices in the 70 largest cities in China rising 0.40% on a month-over-month basis in February, data released over the weekend showed that annualized rate of increase continues to decelerate. The figures serve as additional evidence that government efforts to cool the housing market have had a demonstrable impact.

However, the re-acceleration in home prices on a monthly basis points to the fact that current Chinese policies to keep a lid on property prices might become increasingly ineffective. Recent figures also showed mortgage lending spiking 24.60% year-on-year in February despite the Central Bank’s efforts to cap mortgage loans. In response to the latest data, several Chinese cities unveiled additional restrictions over the weekend. AUDUSD, which is closely linked to fluctuations in the Chinese economy, was last seen trading around 0.7729.


Mexican Peso Strengthens on German Aggression

The Mexican peso is rallying against the US Dollar after Germany warned the United States it could file a suit at the World Trade Organization over President Donald Trump's planned, controversial border tax. Trump has threatened to impose a 35.00% border tariff on cars that German major BMW plans to build at its new Mexican plant and export to the US.

Asked how Germany would react if such a tax were to be imposed, Economy Minister Brigitte Zypries told a media outlet late last week that a WTO suit could be considered given that WTO rules clearly state a maximum of 2.50% tax on imported cars. However, as the latest G20 Summit showed, Trump’s rhetoric against what is perceived as unfair trade agreements continues to take center stage.  USDMXN is trading close to 19.0810 early Monday – the lowest point since November 8th.


Consumer Confidence Dips in New Zealand

Consumer confidence edged lower in New Zealand during the first quarter according to a leading survey released earlier. The Westpac McDermott Miller Consumer Confidence Index dipped 1.2 points to 111.9 during the quarter ending March. A figure above 100 implies optimists outnumbering pessimists, with the survey printing above that mark since March of 2011. The index of present conditions fell 0.2 points to 111.2, while the expected conditions index decreased 1.9 points to 112.4.

Almost 12.00% of the 1,555 residents surveyed during the first fortnight of March expected the economy to expand over the course of the coming one year, down from the 18.00% recorded in the three months to December. Nevertheless, despite falling dairy prices, NZDUSD has managed to form a short-term bottom around 0.6880, and was last trading at 0.7042 as the US dollar remains under pressure.


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