Gold Holds on to its High Perch

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This morning, markets got a lot of news, while still absorbing the RBA interest rate move yesterday, today, the Australian trade balance widened more than expected and the Chinese Non-manufacturing PMI dipped.

The Asian equities are however trading positive after a weak opening as the Chinese nonmanufacturing PMI declined drastically fuelling hopes of more room for easing from the second largest economy.  Base metals are trading slightly down by 0.02 to 0.38 percent apart from Nickel at LME electronic platform.

Late yesterday the US total sales as well as domestic vehicle sales continued to gain momentum and supported downside of riskier assets including base metals. The Chinese are on a weeklong holiday along with the Korean counterparts and hence, expect the metals pack to mostly remain subdued due to lack of spot activity. The recent gains in base metals may fail, as demand from China remains gloomy. Even metal stocks recorded at LME designated warehouses have continued to stockpile except Lead and Copper and may further weaken metals as the session progresses. From the Euro-zone, the shared currency is likely to remain under pressure as traders are waiting for the Euro group meeting next Monday for potential progress on Spain. Ratings agency Moody’s also likely to announce the results of a review of Spain’s sovereign debt rating, currently just one notch above junk status and may further weigh on the 17-nation shared currency extending downside to base metals. From the economic data front, the German PMI services are likely to remain at a blend while the Euro-zone PMI numbers may continue to remain weak due to slower activity in member nations. Even France and Italy’s vehicle sales have declined while the Euro-zone retail sales may remain weak and weigh on metals pack as the day progresses.

Gold (1773.27) futures took a breather yesterday and remained relaxed this morning, probably waiting for the mostly eyed ECB rate decision on Thursday and the US nonfarm payroll data on Friday.

Since market is waiting for a formal bailout request from Spain which would then likely to trigger ECB bond purchase, tolerance is getting slim. Moreover, a weeklong Chinese holiday and indecision ahead of the US nonfarm may keep market restrained today. Gold also seems to be restrained for the day as uneasiness gathered after Spanish Prime minister voiced for a non-imminent bail out request by next weekend. Moreover, Spain is standing on the verge of losing its investment grade as market is waiting for Moody’s credit review on Thursday.  In the US today the ADP employment change may forecast a lackluster total of job addition which may support gold to fly high. Gold and silver seem to remain on a perch waiting for some direction.

Friday’s nonfarm payroll data could be the trigger; a positive report will give hope to traders and move sentiment in favor the USD. Spain is factored into the markets at present.  Many think the Chinese will announce a huge round of monetary stimulus over the holiday break.

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About: FX Empire Analyst - Barry Norman

Barry produces a private Daily Market Review newsletter that is distributed around the globe to over 25,000 subscribers and recently published a book on Options Trading that is available from amazon.com

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