Yesterday (13/1), gold prices recovered from one-week low, closing at $1,093.27/oz, up 0.64% from $1,086.65/oz, while the global and local stock markets witnessed a gloomy day. Gold fluctuated within a wide range, between $1.979 – $1.095/oz.
1. Global stock markets stumble
The chaos on the stock market in the two leading economies have raised the wave of insecurity for investors, when financial instabliiy happened, gold is considered as a “safe haven”. Precious metals bounce back on supporting investment sentiment.
Yesterday, Wall Street slumped badly, the key indices on the US stock market sank simultaneously in red. The S&P 500 closed below 1,900 points for the first time, the lowest since 9/2015, the Dow fell 2.2%, the Nasdaq dropped 3.4%. The S&P 500 had the worst start in the new year in history, with 11% of its value disappear in less than 3 weeks. Securities weakened on falling energy prices, disappointing business performance, and sluggish global economy.
In the Asian session, the China stock is no exception with the Shanghai Composite closed below 3,000 points for the first time since August last year. Despite surprising recovery of export in December, the market is still concerned about the Chinese economy in the context of weakening manufacturing sector, turmoil on the currency market along with enormous capital outflow from Mainland.
2. Dollar weakness
Dollar weakens amid the prospect for rate hike is less likely and the US stocks fell, pushing demand for gold as it is a safe haven asset following the greenback.
According to the Beige Book reported by the Fed, although the labor market showed steady improvement, income growth and prices in most of the states have just inched up modestly. Only 2 of the 12 branches of the Fed reported earnings have improved slightly. The report collected data from 11/2015 to 1/2016 indicating that the US consumer price index (CPI) – the Fed’s preferred gauge of inflation – climbed only 0.4% in November, core inflation (excluding energy and food prices) was only 1.3%, still below the 2% target inflation.
Low oil prices pose a threat to inflation development and puts pressure on CPI. Most experts agreed that there will be no change in interest rates in the January meeting.
Chicago Fed President, Charles Evans said that he was concerned about the Chinese slowdown which could affect the US economy and push inflation expectation away from the goal.
3. Gold hit strong support
$1.081/oz seemed to be a strong support. Yesterday, gold price went down to this support level and bounced back on strong buying.
Analyses of Group If24h