Yesterday (1/2), gold reached the three-month high as the U.S. manufacturing PMI weakens, suggesting that the Federal Reserve is likely to slow down in raising the interest rates. The gold price moved between $1,115.07 and $1,129.56/oz, before setting at $1,128.17, up 0.98% compared with the opening price $1,117.39/oz.
Early in the morning, the Fed Vice Chair Stanley Fischer gave a speech about the US economy and monetary policy in New York. The Fed Vice president strongly hinted that the US central bank’s monetary policy will remain adjustable in near-term future upon global economic growth and the tightening path will be gradual. Speaking at the Council of Foreign Relations, the vice president Fischer highlighted the lower inflation deriving from the further declines in oil prices and a persistently strong dollar. The vice chairman also brought out the slowdown in the global economy, which has pushed the market to hunt for the haven demand. The US manufacturing activity contracted again in January, reaching the lowest level since 2009 as the ISM (Institute of Supply Management) reported the PMI got 48.2, below 50 points. The disappointing US manufacturing data has added to the speculation that the Fed may step on the brake on rate hike path.
The dovish voice from Fed has given a boost for the bullish market of the precious metals.
Today, the IBD/TIPP Economic Optimism and the total vehicle sales will be on the spotlight. Investors are supposed to search for more clues of a hike rate and the economic health based on the two releases. The confidence for the overall economy is anticipated to remain below 50, at 47.8, a little higher than the previous month at 47.3. The slowdown of the world’s second largest economy and the shrinkage of manufacturing activity, along with the turbulence in the equity market is supposed to be the reason behind the lack of confidence. Besides, the total vehicle is expected to get 17.4 millions, around the lowest in recent months.
The probability of the next rate hike will be just one time for this year, instead of 4 times mentioned before amid the sluggish global economy growth and the high-speed market selloff. This will be a positive thing to gold.
Currently, at 16:45 pm, GMT +7, the gold is trading at the price of $1,124.96/oz, down 0.26% from the opening price of $1,128.13/oz.
Taking a look at chart H1, the volume trading is quite thin from the beginning of the session. The down candles appeared from the Asia trading and then extended their slide through the trading. As showed the Fibonacci retracement, the price trend was to move from the strong resistance at level 0.0% with highest price of $1,1130/oz, sliding to level 23.6% with $1,124/oz. The level 23.6% has also been a strong resistance since 26 January.
Refering to RSI (14) index, the indicator pointed out 52.7, above the average level suggesting the “invisible” buying powers. The downtrend of the gold price was supposed to touch the overbought from the previous session, thus the uptrend is possible to come.
Following the ADX (14) index, as showed the point of 21.8 above 20, pointing to the current trend which has not finished yet. The downward of the ADX indicates the uncertainty and caution in the market in general. The -DI has moved upper +DI but now seems to cut it and then drop below. The down price is uncertain till now as the indicator tells. The Bollinger Band has narrowly shrink as the volatility was low. The price is predicted to be sideway according to the Bollinger Band. The current candle has not tested the MA 20 like the previous ones. However, the price is able to break the MA and go towards the upper band.
The downtrend is now surpassing the uptrend during the European session as the German Unemployment Change was reported to be positive. The buying powers have not yet showed the huge extention with the short green candles. However, the long upward shadow has pushed the candle towards the sideway conditions as showed some of the candles.
The market is now in hesitance as there is no such an influential economic data until tomorrow. The contraction in manufacturing sector not only in China but also in the US has raised a concern about the economic health around the world.
The Fed’s slower move in the tightening policy has weighed on the dollar and the gold demand as a more gradual step will be a less threat to the precious metals.
The Fed officials’ comment on the world economy and its effect on the US economy will put a lid on dollar, which supports the precious metals.
However, the rally of the safe-haven has not been at best as seen the year of 2008 and 1987, when the price has recovered almost as high as 16%. The gold investment as a non-interest asset is still in the question while other more risky assets will gain profit for investors.
The firm labor market has formed a momentum for Fed to consider the probability of a next hike rate. Despite the soft manufacturing sector, the US service activity may rebalance the growth outlook and reinforce the US economy. The release of the total vehicle revenues today will also support the economy as widely expected, which will drag the gold down in some ways.
The stimulus hint from other Bank of Japan and the European Centre Bank (ECB) will help the stock market to regain the lost ground, therefore, the calmness in the market will lead to the choice of other currencies and risky assets, instead of gold.
The falling oil price and commodity is likely to become an obstacle to gold. The energy price has tumbled as Russia denied the cut-down the supply from the major producers. The oil drop will trigger no inflation and in turn no need to buy gold to protect against the low prices.
Today, the price may move up slightly as the U.S. economy confidence may drop down. Given that case, the price is anticipated to be as high as $1,135/oz.
Nevertheless, as mentioned in the Risk analyses, the gold price may move down as low as $1,114/oz.
Analyses of Group Fiinvesting