Haven Demand Tumbles Plunging Gold Prices

Daily Analysis - 01/05/2017

Dollar Strengthens as Temporary US Budget Deal Reached

Gold prices fell on Monday, hurt by a strengthening dollar after the greenback edged higher following a deal ironed out by Congressional negotiators to keep the Federal Government funded through September.

Precious Metal Bears Gaining Ground

Gold recorded its biggest weekly percentage dip last week since the five days ending March 10th, hit by the prospect of higher interest rates that could take the shine off the metal. Technical analysts reckon that support $1260 is the key level to watch as momentum downwards accelerates. If prices dip below, gold could slide all the way to $1230 per troy ounce. Given the current session’s weakness, and an improved outlook for US government funding which was reached overnight, pressure may stay intact near-term.

However, ignoring the near-term outlook for gold, hedge funds continue to buy gold futures, increasing their net long position in COMEX gold for the sixth consecutive week according to figures released by the US Commodity Futures Trading Commission on Friday. Gold was last seen trading just below $1262.50 per troy ounce on Monday after opening lower.

US Clocks Sluggish Growth Pace

With the rate hikes looming in the background, US gross domestic product recorded its slowest pace of growth in three years during the first quarter after consumer spending hardly increased while the government cut back on defence expenditures. Figures reported by the Commerce Department showed that GDP rose at a 0.70% annualized pace compared to the 2.10% increase recorded back in the fourth quarter, notching the weakest growth since the first quarter of 2014.

The consensus estimate of economists surveyed had projected GDP rising at a 1.20% rate last quarter. The latest figures might prove to be a setback for President Donald Trump's much-hyped resolve to boost growth, with economists saying it would be difficult for Trump to realize his promise of lifting annual GDP growth to 4.00%. After hitting a one-week low, S&P 500 futures for June have rebounded to trade around 2385 on Monday.

Chinese Factory Activity Eases

After reaching a multi-year high in March, the pace of Chinese manufacturing activity slowed in April to the lowest point in six months, indicating that the most recent spurt in growth is unlikely to be sustainable. The National Bureau of Statistics of China purchasing manager's index, which measures conditions at manufacturing units and mines, came in at 51.2 in April. While the figure managed to stay above the 50-mark that separates growth from contraction, it fell from the five year high of 51.8 hit a month prior.

The Chinese economy grew at a faster-than-expected 6.90% in the first quarter, buoyed by higher government infrastructure spending. However, growth is expected to slow as authorities take steps to cool the booming real estate sector. With the dollar gaining down and manufacturing data disappointing, USDCNH is back on the climb following a modestly lower close on Friday.

Canada Reports Narrower Budget Surplus

After coming in strong in January, Canada posted a second straight monthly budget surplus in February. However, despite the headline optimism, the windfall narrowed compared to the same period a year ago amid a decline in revenue, while government spending increased for programs like an expanded children's benefit program launched last July.

According to data compiled by the Finance Department, Canada recorded a surplus of CAD 1.29 billion ($943 million) in February, down from CAD 3.21 billion a year ago data. Revenue fell -1.40% during the month amid lower income and excise tax receipts. Spending on government programs rose 7.00%, with children's benefits alone jumping by 30.50%. With just one month of data yet to be released for fiscal 2016-17, the Canadian government is forecasting a CAD 23.00 billion budget deficit for the year ended March 31^st. Amid the pickup in US dollar momentum, USDCAD is gaining Monday, trending around 1.3680.