Gold Tumbles to 7-Week Low

Daily Analysis - 03/10/2017

Firmer Dollar Reverses Bullion Gains From Heightened Geopolitical Tensions

Gold prices fell to a seven-week low in Asian overnight trade as a stronger dollar and higher US Treasury yields dampened investment demand for the non-interest bearing asset. After settling Monday at $1270.84 per troy ounce, its lowest daily close since August 16^th, gold briefly dipped below $1270.00 before recovering.

Technical Outlook For Precious Metals Turns Bleak

Gold has been struggling since the past few sessions amid a still-firming dollar and a marked reduction in tensions on the Korean peninsula. The greenback climbed on Monday against most major currencies after stronger than expected US manufacturing data was released. The sentiment in bullion was also hit after Dallas Federal Reserve President Robert Kaplan said the Central Bank needs to “look hard” at whether it should hike interest rates in December. Higher rates typically tend to lift the dollar and push yields up, both of which historically have proven to be headwinds for gold. XAUUSD is currently trading around $1272.00 per troy ounce with $1268.00 representing the immediate downside support. The short-term trend is decisively bearish, meaning any breach of support could see gold prices slip towards levels closer to $1260.00 per ounce.

US Construction Spending Rebounds

Figures compiled by the US Commerce Department showed that construction spending in the United States bounced by 0.50% in August after two straight months of contraction, boosted by strength in commercial construction and home building. The climb came after drops of -1.20% in July and -0.80% in June, with the latest reading marking the best print since the 1.60% increase recorded in May. Still, the August rise was not enough to offset the losses felt during the previous two months, with construction spending -1.50% below the level hit in May. Separate data from the Institute for Supply Management showed that US factory activity soared to a more than 13-year high in September amidst solid gains in new orders. The ISM’s index of national factory activity jumped to 60.8 last month to reach its highest point since May of 2004. S&P 500 futures are currently hovering around a new intraday high 2529.25.

UK Factory Growth Slows

Denting hopes of a boost from the weaker Pound, UK manufacturing growth cooled in September as cost pressures mounted according to a widely-followed survey. The Markit UK Manufacturing PMI fell to 55.9 last month from a downwardly revised 56.7 in August, falling short of the of 56.4 consensus estimate from a Reuters survey of economists. However, the figure easily topped the 50-threshold that signals expansion, with Markit noting that the sector was still expanding “at a solid clip” on the back of increasing production and new order growth. Official economic growth figures published last week showed manufacturing output contracting by -0.30% during the second quarter from the prior quarter. Further indications of the health of British industry will be forthcoming with PMIs for the construction and service sectors scheduled for release on Tuesday and Wednesday. FTSE 100 futures are gaining early Tuesday to trade around 7397.00.

Australia Leaves Monetary Policy Unchanged

The Reserve Bank of Australia opted to keep its benchmark interest rate stable at its latest board meeting, prompting the Aussie dollar to slip as much as -0.50% against its US counterpart. The Central Bank maintained its cash rate target at a historical low of 1.50% during its October meeting, marking the 14^th-straight month without any adjustments. The policy decision matched the forecasts made by 48 out of 49 economists polled by Reuters. In a statement following the monthly board meeting, RBA Governor Philip Lowe remarked that GDP growth of 0.80% recorded during the June quarter combined with other positive data points were consistent with the Central Bank’s expectations. The RBA is currently anticipating economic growth will gradually accelerate over the next year, helping boost inflation and help eventually normalize policy. The AUDUSD pair was last seen back above 0.7800 after recovering from earlier lows.