Gold hovers above 3-month lows

October 5, 2016

Gold was left vulnerable to extreme losses on Tuesday with prices sinking to levels not seen since June 2016 at $1266.40 following Dollars resurgence which enticed sellers to attack. The steep decline was intensified by the rising expectations over the Federal Reserve raising US interest rates in 2016 which simply repelled attraction towards the zero-yielding metal. Although risk aversion amid the ongoing concerns over the global economy has kept Gold somewhat buoyed, the strong combination of Dollar strength and renewed Fed hike hopes could ensure prices remain depressed for an extended period. Investors may direct their attention towards Wednesday’s ADP Non-Farm payroll and if such exceeds expectations, Gold could be provided with enough downside momentum to conquer fresh lows.

From a technical standpoint, prices are trading below the daily 20 SMA while the MACD has crossed to the downside. Previous support around $1285 could transform into a dynamic resistance which encourages a further decline towards $1260.

IMF reiterates gloom and doom

Global sentiment was slightly dented on Tuesday following the International Monetary Fund’s (IMF) gloomy warnings of subdued global growth which soured investor risk appetite. In the latest world economic outlook, global growth for 2016 was left unchanged at 3.1% that represented the slowest rate of growth since the financial crisis while US growth was trimmed to 1.6% this year. Although the IMF crowned the United Kingdom as the fastest growing major economy this year, growth for 2017 was sharply cut to 1.1% in the immediate aftermath of the Brexit vote. With the IMF repeatedly showing concerns over slowing growth and instability, this could catalyse another wave of risk aversion consequently punishing stocks in the future.

Sterling vulnerable ahead of services PMI

Sterling continued its slippery decline this week with the GBPUSD conquering fresh 31 year lows at 1.2700 as the ongoing Brexit uncertainties haunted investor attraction towards the currency. Britain’s construction industry displayed resilience in September against the Brexit but this did little to quell the uncertainty which dragged Sterling lower. Much attention may be directed towards the UK services data that should present a clear picture on how services have fared post-Brexit. While a positive figure could potentially provide the pound a lifeline, the Brexit jitters may be bone deep consequently ensuring the Sterling remains depressed until the article 50 invoke date. Although sentiment towards the UK economy continues to be uplifted as domestic data repeatedly beats, the persistent uncertainty and unknowns over how the Brexit negotiations will take place have seriously soured investor appetite towards the Sterling.

ADP NFP report in focus

The Dollar lurched to near two-month highs around 96.39 on Tuesday following hawkish comments from Federal Reserve officials which bolstered expectations over the Fed raising US interest rates this year. Dollar bulls have been nourished this month with the recent firm ISM manufacturing data providing a foundation for buyers to propel the greenback higher. Attention may be directed towards Wednesday’s ADP Non-Farm payroll report which could provide additional clarity on how the US labour force is faring in a period of global uncertainty. A positive ADP could be the catalyst needed for the Dollar Index to charge back towards 96.50. From a technical standpoint, the Dollar Index is turning bullish on the daily timeframe as prices are above the daily 20 SMA while the MACD has crossed to the upside. Previous resistance around 96.00 could transform into a dynamic support which encourages a further incline towards 96.50.

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