Gold Takes a Breather

Daily Analysis - 18/04/2017

Profit-Taking Pulls Prices Lower

Gold is witnessing a mild pullback in early Tuesday trade after rallying close to 3.00% in the last 4 sessions. Analysts attribute the latest dip to a bout of profit-booking and a technical pullback, as bulls take a breather before attempting to push the precious metal to fresh highs.

$1300 Psychological Barrier Remains in Sight

Gold has been surging amid the weakness in the dollar on the back of growing tensions between the US and North Korea. Pyongyang put on a massive military parade showcasing its capability over the weekend, which was followed by a failed missile launch. Ongoing tension in the Korean peninsula is likely to keep the markets nervous over the near-term as two more US aircraft carriers steaming towards the Korean Peninsula.

With the French elections beginning in under a week’s time, uncertainty is high, and should be enough to maintain safe-haven demand for gold. Bullion reversed from a five-month high in Monday trading, with $1300 as the immediate resistance on the upside. A close above this level could see prices rally all the way to $1320. Bullion was last seen trading around $1283 per troy ounce on Tuesday.

US Homebuilder Sentiment Dips

Data released on Monday showed that US homebuilders are increasingly less optimistic about their sales outlook. The National Association of Home Builders Sentiment Index fell to 68 in April, three points below the March reading of 71, which also marked the highest level in the index since June of 2005. Amid expectations of the index dipping just modestly to 70, the April figure fell short of the average analysts’ forecasts. Builders' projection of sales over the next six months also dropped lower, as did the measure of prospective buyers.

However, despite the downbeat sentiment, sales of new homes continue to remain robust. Low mortgage rates and the relative strength in the jobs market have helped push home sales higher, with February recording the fastest pace since July of 2016. EURUSD was last seen modestly higher on the session, trending around 1.0650 in early Tuesday trade.

RBA Concerned About Jobs, Housing

Conditions in the Australian labour market have been somewhat weaker than what was expected, minutes from the April meeting of the Reserve Bank of Australia showed. The Central Bank noted that growth in housing credit continued to outpace household incomes growth, suggesting that the palpable risks associated with household balance sheets and the housing market had been rising. In order to balance the subdued labour market with the escalating household debt, policymakers decided to leave interest rates steady at 1.50%.

Investors are now awaiting the release of next week’s quarterly inflation figures to help refine their monetary policy and interest rate outlook. The AUDUSD pair has been tumbling since the minutes were released, with the pair currently trading around 0.7550. Furthermore, growing geopolitical tensions continue to spur capital flight to safe-haven assets like gold and Japanese Yen and away from risk assets like the Australian dollar.

Russian Industrial Output Disappoints

After recording a -2.30% drop the previous month, Russian industrial production expanded by 0.80% year-over-year in March, recovering moderately but nevertheless missing the consensus market expectation of a 1.20% gain. Manufacturing output rebounded sharply from -5.10% in February to 1.00%, while production of electricity and gas increased by 0.40% in March from 2.70% a month prior. Mining output also edged higher by 0.20% after remaining unchanged in February. On a month-over-month basis, industrial output soared 12.70%, versus the -0.60% dip in February.

Although equities have been tumbling since February, the latest set of data may extend the prior session’s rally in the MICEX as the Ruble continues to appreciate. After steadily trending lower since the record highs of 2016, the USDRUB pair is currently trading around 55.9650, just above the strong support at 55.8000, which coincides with the lows of last month.