Gold takes a breather; Global Economy Bolsters and AUD Appreciates

  • Feb 05, 2020
  • Team Kalkine
Gold takes a breather; Global Economy Bolsters and AUD Appreciates

Post smashing its own record highs, the gold spot is now under slight pressure as global economic indicators demonstrating some positive readings on the scale, which might be estimated by bullion enthusiast to be tentative, but currently keeping the gold under check.

The gold spot inked a record high of $2,378.76 on 31 January 2020; however, the onset of February has shadowed some shine of gold with gold spot trading in negative territory for the third consecutive trading session. The gold spot fell from its recent top of $2,378.76 to the present level of $2,309.42 (as on 5 February 2020 12:49 PM AEDT), which underpinned a price deprecation of ~ 2.91 per cent.

Equities market across the globe, particularly in Asia surged despite the impact of the coronavirus on day-to-day activities, which in turn, further capped the gold spot.

Economic Indicators on a Positive Scale

  • The durable goods orders for January 2020 across the United States surged by 2.4 per cent against the previous month, which remained significantly up against the market forecast of 1.2 per cent and the December 2019 decline of 2.1 per cent.

 

The higher inflow of durable goods, such as automobiles, electrical appliances, suggested that the manufacturing activities revived across the United States during January 2020.

  • The indication for manufacturing activities also came positive with Richmond Manufacturing Index surging substantially above its indication value of 0 to stand at 20 for January 2020, which also surveyed as a positive signal towards the recovery of manufacturing activities across the United States.

 

The reading of 20 on the Richmond scale also remained substantially higher against the market expectation of -3 and previous drop below 0 at -5 in December 2019.

  • The Conference Board Consumer Confidence Index for the United States surged in January 2020 to stand at 131.6 (1985=100), which remained significantly up against the previous reading and the market consensus of 128.2.

 

The increase in consumer confidence was driven primarily by the positive assessment of working-class people across the United States over future job prospects. The Senior Director of The Conference Board- Lynn Franco also mentioned that the optimism around the labour market would further support the consumer confidence ahead in the short-term.

While orders for durable goods improved, manufacturing activities surged substantially, and consumer confidence concreted further in January 2020 across the United States, the quarterly Advance GDP for December 2019 remained stable with a positive percentage change of 2.1 per cent against the previous quarter.

Post combining all the above-presented data, it could be seen that the previous quarter in the United States remained steady with GDP changing positively by 2.1 per cent against September 2019 quarter, and the present quarter has demonstrated some strong number for manufacturing and strong consumers perspective over jobs future, which further suggests that the economic condition of the United States might not be in as much as in bad shape as gold enthusiasts anticipate.

However, bullion investors are still favouring gold and anticipate the recovery across the global figures to be tentative, which makes it more interesting to look ahead, which side of the investing community would eventually win over.

Manufacturing and Non-Manufacturing Activities in China

  • The manufacturing activity for January 2020 across China remained steady with Manufacturing PMI standing at 50.0 as compared to the previous level of 50.2. However, non-manufacturing activities have seen growth for the second time with Non-Manufacturing PMI standing at 54.1 for January 2020, up against the previous level of 53.5 and market expectation of 53.1.

 

The Caixin Manufacturing PMI for January 2020 stood at 51.1, which also remained above the mean value of 50.0.

As a cumulated effect of improved manufacturing and slight recovery across the globe, gold spot tumbled, and the United States dollar gained the momentum.

Appreciating Home Currency

The dollar index, which tracks the movement in dollar, soared from 96.36 (intraday low on 31 December 2019) to the present level of 97.97 (as on 5 February 2020 12:53 PM AEDT), which marked a gain of ~ 1.67 per cent. The rise in the dollar kept the gold prices in USD under check.

While on the domestic front, AUD remained under pressure for quite a while, which further propelled the gold in the domestic market to a record high; whereas, gold in other currencies failed to establish record highs, albeit, multi-year highs could be seen.

AUDUSD ($ per USD) fell from 0.7029 (intraday high on 1 January 2020) to the present low of 0.6679 (intraday low on 4 February 2020), which marked a currency depreciation of ~4.97 per cent.

Also Read: ASX Gold Stocks Not as Shiny as Global Peers?

However, the recent recovery in the economy has boosted AUD slightly with 1 AUD rising from USD 0.6679 to the present level of USD 0.6739 (as on 5 February 2020 1:13 PM AEDT). Many industry experts and independent forecasters such as the Department of Industry, Innovation and Science (or DIIS) anticipate that the domestic currency would show strong recovery ahead, which is further estimated to exert pressure on the export earnings.

In the gold context, the rise in AUD could exert pressure, and we might see gold unable to unlock its full potential ahead on the domestic front; however, to ascertain the impact of rising AUD, investors should monitor the correlation of AUD with XAUAUD (gold spot) to gauge the impact of rising AUD on gold spot in percentage terms.

Market Uncertainty and Strong Resistance at USD 1,600

The recent outbreak of the coronavirus also played its part in fuelling gold; however, in the status quo, the World Health Organization (or WHO) has eased-off the tension around the epidemic threat, by establishing guidelines and medical assistance to contain the spread.

To Know Resistance and Support for Gold, Do Read: Technical Lens Over Gold, Crude Oil, and Iron Ore

However, the local threat of China is now taking the shape of a pandemic with many cases reported outside China. Investors should closely monitor the live tracker created by the WHO to track the total confirmed cases (on a regional basis), which would help them in assessing the overall market uncertainty concerning the coronavirus.

Also Read: Base Metals and Iron Ore Turning Red Hot as Coronavirus Turns into a Pandemic Threat

Despite the risk measure adopted by WHO and the local authorities in China, the market is still pessimistic over the coronavirus threat; however, some industry experts believe that the risk would be contained with WHO’s guideline and would not hamper the market in the near future, which in turn, is also creating many doubts around the gold rally. Though, the fundamentals behind gold still remain strong with buying from gold-backed ETFs surging quarter-on-quarter.

Also Read: ETF Gold Rush and Future


 

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