Haven Demand Spurs Higher Gold Prices

Daily Analysis - 13/03/2017

Precious Metals Rebound From Friday Trough

Gold prices edged higher on Monday, moving further away from the five-week low hit on Friday, buoyed by safe-haven demand ahead of key national elections in Europe as the dollar optimism from increased rate hike speculation takes a brief pause.

Dutch Election Provides Latest Haven Catalyst

Investors decided to switch to the relative stability of bullion as Dutch voters prepare to cast their ballots on March 15 to elect the next prime minister. The vote has become some sort of a bellwether for populist sentiment on the continent, as Euro-skeptic Geert Wilders, who heads the Party for Freedom, gathers momentum, capitalizing on rising anti-immigration sentiment.

Gold has rallied off the key support at $1200, and was last trading just shy of $1210 per troy ounce. Meanwhile, SPDR Gold Trust, the world's largest gold backed ETF, slashed its holdings by -1.06% to 825.22 tonnes on Friday. This comes amid money managers reducing their net long positions in the metal from the highest level in 3 months per the latest data from the US Commodity Futures Trading Commission.

China Foresees Steady Economic Growth

The likelihood of Chinese economy suffering a “steep slide” has fallen amidst positive signs from the domestic sector according to Li Wei, Director of the state-owned Development Research Center. GDP growth of 6.70% last year largely hinged upon record bank loans that supported a speculative housing boom. However, as Beijing tries to cool the property market by curbing fresh credit, it will depend more and more on private investment and domestic consumption to carry the economy forward. Last week,

China surprised markets by posting its first monthly trade gap in three years as the construction boom sent imports soaring. The upbeat reading reinforced views that economic activity in the country picked up during the first two months of the 2017. USDCNH has slid off a two-month high in the past couple of sessions, and is currently perched just below a strong resistance at 6.9000.

Euro Climbs to One Month High

The Euro climbed to its highest level in over a month against the US dollar in early Monday trade as the markets reassessed the odds of a December rate hike from the European Central Bank. Mildly hawkish comments from ECB President Mario Draghi brought Euro bulls back to the market, pushing the common currency to as high as 1.0705 against the greenback in morning trade.

However, several leading media outlets report that even though some members of the Central Bank’s Governing Council did indeed discuss the possibility of higher rates at its latest policy meet, the idea did not receive broad based support. The ECB intends to keep buying government bonds until the end of current year, and is widely expected to extend the quantitative easing programme into 2018, albeit at a slower pace.

Business Investment Indicator Dips in Japan

January data from the Japanese government on Monday for core machinery orders, a leading indicator of business investment, fell in January, reigniting fears that uncertainty over the domestic economic scenario is discouraging corporations from investing. The prospect of further escalation in trade friction between the US and Japan following President Donald Trump's criticism of unfair competitive practices of Japanese firms may be weighing on investment sentiment.

Core machinery orders dropped by -3.20% on a month-over-month basis in January, versus the higher revised increase of 2.10% reported a month earlier and the consensus of economists for a -0.50% dip for the period. On a year over year basis, orders fell -8.20%. USDJPY was last trading around 114.500, down from the highs set on Friday as the dollar remains under pressure following the disappointing wage growth announced during Friday’s labor report.