Vang SJC

Yesterday, the gold price bounced back after the thin trading volume. The price closed at $1,100.63/oz, up 1.19% from the opening price $1,087.11/oz after the release of the unexpected US consumer price index.

FUNDAMENTAL ANALYSIS

Fundamental Analysis

Losses in global equity markets underpin the demand for assets perceived as safer and the gold market signals the positive outlook as gold rallied to a more than one-week high at $1,100/oz yesterday (20/1). The US economy appears not to support the Fed hike rate for the January meeting, so this move will put the gold into the bull market.

Today in the US, the spotlight will be the weekly Unemployment Claims, published by the Ministry of Labour, and show the total number of people who applied for the unemployment benefits for the first time last week. Analysts predicted that the data of the week 11-15/1 would drop by 5,000 compared with the 284,000 coming out the previous week. However, the data 279,000 is a little bit greater than the previous forecast 275,000 claims, which raise a little confusion among investors about the labor market.

The labor market has improved considerably as the US economy has created more than 200,000 jobs per month, nevertheless, the figure of 284,000 unemployment claims last week came as a surprise, touching nearly a high since July,2015. From the experts’ forecast for last week, the market sees growing risk of disappointing U.S. economic growth which is unlikely to do a favor for the Fed tightenning policy, therefore gold still is the prior choice in investment.

In addition, Philly Fed Manufacturing Index is also “on air” later, as a leading indicator of economic health which shows changes in business sentiment that decides on spending, hiring, and investment. The index is above  0.0 indicates improving conditions, and vice versa. The index is predicted at -5.8, below 0.0 and is much lower than the previous forecasts, which reveals the contraction of the manufacturing sectors. As a result, the data will disappoint investors about the economy prospects and encourage them to shift into safe-haven appeal.

The downbeat data could persuade the Federal Reserve to delay its next interest rate hike after the first quarter. Consumer prices (CPI), excluding food and energy costs, inched up 0.1%, missing forecasts of 0.2%, while the CPI even down lower at -0.1%, offering signs of weak inflation. A gradual path to higher rates is seen as gain to the gold prices.

Retreating oil prices from the US crude oil inventories high at 3.3 million barrels for last week released late today will dampen the global equities markets, such as Wall street and Asia stocks. The turmoil in global equities markets will give a further boost for the demand on gold, which is often seen as a refuge from financial risk.

TECHNICAL ANALYSIS

Technical Analysis

Currently, at 16:49, GMT+7, the gold is trading at $1,099.11/oz, decline from the opening price of $1,100.83/oz, down %.

1-3

Fibonacci retractment showing, the yellow metal is trading up and below the level 23.6% at $1,100/oz – the one-week high and the tough resistance from one week ago. The highest resistance is the level 0.0% at $1,109/oz, the trend price seems to find it hard to reach this level until this moment.

For the time being, the focus will be the European Central Bank (ECB) press conference with more hawkish from the ECB president, Mario Draghi. Therefore, the euro will be prefered against the dollar or gold in the late Europe session.

The level 38.2% will be the great possiblity for the gold price as this level is a popular test during the week.

2-5

Regarding RSI (14) on chart H1, the index from 50 dips into 46.7719 signalling the selling position. As can be seen, yesterday’s session, when RSI was over the level 70 then went down as investors sell off the rebalance the market. The US trade saw a decline in the “ladder” form. The price trend forms a model “shoulder – head – shoulder”.

3-4

Deriving from the ADX (14) index, the data reach the level 21, which shows the previous trend on track to decrease. The -DI cut the +DI and goes beyond that line indicating the selling positions. The Bollinger Band is shrinking, compared with the wide band last session, refers to that the flexibility of the price is quite low. Furthermore, the price is in the range of the average bandline and the lower bandline.

SENTIMENT ANALYSIS

Sentiment Analysis

4-4

According to chart H1, price is forming more red candles before the job report is due soon. The red candles also appeared with the green ones but it was not until now that market receives rather longer candles in red. The activities in the gold market tends to be quite certain as there is hardly shadow on each candle. The selling positions are weighing on the precious metal price from the great demand yesterday.

There is just one week before the FOMC meeting due late in January, the market is all eyeing on the next move and comments from the Fed officials to make sure whether Fed will raise the interest rate or not after the first time in December, 2015. Besides, all market watchers will pay attention to the statement issued next Wednesday to see if it contains any hints about March.The market expects Fed to have a rate liftoff to invest in dollar with the utmost gains and put the gold aside instead. The next interest rates will be a threat to gold prices when gold is just an alternative asset in case of economic uncertainty.

The buying force yesterday comes from the market sentiment after the consumer price report, which is not stable to support the gold price for today. Investors have taken the strong job market into consideration, especially the unemployment claims will confirm the robust in the US labor market.

RISK

Risk

The gold prices is now facing resistance around $1,100 as the threat of further U.S. interest rate increases and a stronger U.S. dollar suggest limited upside potentials.

In China, the second largest consumer in the world, the current weak demand and the economy slowdown will dent the demand for gold.

The market is ignoring the fresh data released on Wednesday (20/1) by the Labor Department, which shows that core inflation, minus volatile food and energy prices, is approaching higher.
While the data got weak on the surface due to the falling costs of gasoline and oil, the December CPI report showed that core consumer prices accelerated to a 2.1% rate over the past year, which is the strongest annual rate since July 2012. With the strongest inflation rate and the strong job growth, Fed will have confidence to carry on the next hike rate this year.

The low oil price will give another terrible outlook which makes an influence on the gold demand when oil price is now $28/barrel, the lowest point since 2003. Gold will not be needed to hedge the oil-led inflation any more.

Market Commentary

5-2

Today, the precious metals are likely to rise as the job report on unemployment claims is high, suggesting the uncertainty in the US economy, given the case, the price may rise to $1,105/oz.

However, as discussed in the Risk section, price may go down to $1,090/oz, getting losses from the high yesterday.

 

Linh Nhan