Gold Fundamental Analysis Jan. 31, 2012, Forecast

Economic Events: (GMT)

Just a heads up since gold is volatile and will react to most economic indicators we will begin to post the daily calendar with events that could effect the price of gold.

The gold price is sensitive to a number of scheduled U.S. and Euro area macroeconomic announcements—including retail sales, non-farm payrolls, and inflation. Gold’s high sensitivity to real interest rates and its unique role as a safe-haven and store of value typically leads to a counter-cyclical reaction to surprise news, in contrast to their commodities. It also shows a particularly high sensitivity to negative surprises that might lead financial investors to become more risk averse.

 These results have a number of implications. To reduce the uncertainty of the return on gold transactions, traders may wish to time their orders flow so as to avoid the release of  information that has been shown to affect prices. For longer-term market participants, these results provide confirmation of the pro-cyclical bias of many commodities and gold’s role as a safe-haven during periods of economic uncertainty. 

00:01     GBP       GfK Consumer Confidence     -32                          -33

 Gfk Consumer Confidence measures the level of consumer confidence in economic activity. A reading above zero indicates optimism; below indicates pessimism.

A higher than expected reading should be taken as positive/bullish for the GBP, while a lower than expected reading should be taken as negative/bearish for the GBP.

07:00     CHF       Consumption Indicator     0.81

The UBS Consumption Indicator is a leading indicator of private consumption trends. This indicator is a combined reading of five indicators, including consumer confidence, consumer spending, tourism, new car sales, and retail activity.

A higher than expected reading should be taken as positive/bullish for the CHF, while a lower than expected reading should be taken as negative/bearish for the CHF. Due to the current sitaution of the Swissie this report will be important this week.                         

 07:00    EUR        German Retail Sales (MoM)     0.8%                      -1.0%

German Retail Sales measures the change in the total value of inflation-adjusted sales at the retail level, excluding automobiles and gas stations. It is the primary indicator of consumer spending, which accounts for the majority of economic activity.

A higher than expected reading should be taken as positive/bullish for the EUR, while a lower than expected reading should be taken as negative/bearish for the EUR.    

 07:45    EUR       French Consumer Spending (MoM)     0.3%                      -0.1%    

07:45     EUR       French PPI (MoM)     0.1%                      0.4%

French Consumer Spending measures the change in the inflation-adjusted value of all goods expenditures by consumers. Consumer spending accounts for the majority of economic activity.

The Producer Price Index (PPI) measures the change in the price of goods sold by manufacturers. It is a leading indicator of consumer price inflation, which accounts for the majority of overall inflation.

A higher than expected reading should be taken as positive/bullish for the EUR, while a lower than expected reading should be taken as negative/bearish for the EUR.    

08:55     EUR       German Unemployment Rate     6.8%                      6.8%    

08:55    EUR       German Unemployment Change     -7K                        -22K

The German unemployment rate measures the percentage of the total work force that is unemployed and actively seeking employment during the reported month. 

German Unemployment Change measures the change in the number of unemployed people during the previous month.

A higher than expected reading should be taken as negative/bearish for the EUR, while a lower than expected reading should be taken as positive/bullish for the EUR.    

09:00    EUR       Italian Monthly Unemployment Rate     8.7%                     8.6%

The Italian unemployment rate measures the percentage of the total work force that is unemployed and actively seeking employment during the previous month.This data tends to have a muted impact since there are several earlier indicators related to the euro zone labor market.    

09:00     EUR       Italian PPI (MoM)     0.0%                      0.1%

The Producer Price Index (PPI) measures the change in the price of goods sold by manufacturers. It is a leading indicator of consumer price inflation, which accounts for the majority of overall inflation.

A higher than expected reading should be taken as positive/bullish for the EUR, while a lower than expected reading should be taken as negative/bearish for the EUR.

 Tenta   EUR        Spanish Business Confidence     -21                          -20

Business Confidence rates the current level of business conditions. It helps to analyze the economic situation in the short term. A rising trend indicates an increase in business investment which may lead to higher levels of output.

A higher than expected reading should be taken as positive/bullish for the EUR, while a lower than expected reading should be taken as negative/bearish for the EUR.

 09:30    GBP       M4 Money Supply (MoM)     0.3%                      -0.6%     

 09:30    GBP      Mortgage Approvals     53K                         53K    

 09:30    GBP      Net Lending to Individuals     1.2B                       1.0B

M4 Money Supply measures the change in the total quantity of domestic currency in circulation and deposited in banks. An increasing supply of money leads to additional spending, which in turn leads to inflation.

Mortgage Approvals measures the number of new mortgages approved for home purchases during the previous month by the Bank of England. The data tends to have a limited impact because about 60% of all mortgages are covered by the BBA Mortgage Approvals data released a few days earlier.

Net lending to individuals measures the change in the total value of new credit extended to consumers. It is closely correlated with consumer spending and confidence.

A higher than expected reading should be taken as positive/bullish for the GBP, while a lower than expected reading should be taken as negative/bearish for the GBP.    

 10:00    EUR       Unemployment Rate     10.4%                    10.3%     

The Unemployment Rate measures the percentage of the total work force that is unemployed and actively seeking employment during the previous month. The data tends to have a muted impact as there are several earlier indicators related to labor conditions in the euro zone.

A higher than expected reading should be taken as negative/bearish for the EUR, while a lower than expected reading should be taken as positive/bullish for the EUR.               

13:30     USD      Employment Cost Index (QoQ)     0.4%                      0.3%

The Employment Cost Index measures the change in the price businesses and the government pay for civilian labor. 

A higher than expected reading should be taken as positive/bullish for the USD, while a lower than expected reading should be taken as negative/bearish for the USD.                          

 14:45    USD       Chicago PMI     63.0                        62.5                       

 15:00    USD       CB Consumer Confidence     68.2                        64.5

Conference Board (CB) Consumer Confidence measures the level of consumer confidence in economic activity. It is a leading indicator as it can predict consumer spending, which plays a major role in overall economic activity. Higher readings point to higher consumer optimism. 

A higher than expected reading should be taken as positive/bullish for the USD, while a lower than expected reading should be taken as negative/bearish for the USD.

Analysis and Recommendations:

Gold is trading at 1735.20. In a surprising day of trading, as the USD picked up momentum as investors moved to the safety of the greenback the euro collapsed against all its trading partners. Gold seemed to follow suit in early trading, but has maintained most of the remaining in a tight range. It seems the jittery nerves and worries of investors have found that gold is a safe bet at the moment. All of this has been brought on by a weekend of promises from Greek and EU leaders along with the negotiators from the IIF all making statements that a deal had been reached. By mid day Monday, there was no deal on the table and the EU Summit convened with out a deal.

Portugal’s borrowing rate soared to record levels today, compounding the worries in Europe.

Gold will probably continue to rise over the next week while investors try to figure out just what is happening. Gold will probably bounce between support and resistance over the next few days. Futures were likely to find support at USD1,714.45 and resistance at USD1,760.35, the high from December 8