Gold Takes A Significant Step Up On Weaker Economic Data

Gold ended Monday at 1126.50 with a gain of more than $10.00 as oil prices reversed course and gave back a significant amount of last week’s gains. Silver took its cues from gold adding 32 points to 14.265 while Platinum bucking the trend and declining $4.50 to 896.90 on weaker automobile sales. The two-day decline in oil prices has sent traders running for the safety of the metal but after significant climbs on Monday, Tuesday morning found Asian traders booking profits as prices eased a bit but oil continued to fall.

Gold advanced at the start of the month on Monday, extending gains after ending January with its biggest monthly jump in a year, as poor Chinese manufacturing numbers underlined the weak outlook for the global economy.

China’s stocks fell after an official measure of manufacturing in the world’s No. 2 economy hit its lowest since mid-2012.

Inflows into the world’s largest gold-backed exchange-traded funds were the strongest in a year last month as investors moved into gold due to volatility in other assets, including equities.

Bullion gained 5.4 per cent last month, its largest gain since January 2015.

Strong inflows into gold exchange-traded funds, Chinese buying ahead of the Lunar New Year and support from the volatility in other asset classes combined to boost gold in January, said Mark Keenan, head of commodities research in Asia at Societe Generale. Commentators point out that gold has behaved exactly this way in the past three ways as the Chinese New Year has approached, only for demand to peter out quickly afterwards.

This time, buying has been more widespread says Commerzbank. Exchange traded funds monitored by Bloomberg saw their highest inflows for a year, in January, at almost 55 tons.

Demand for coins has been strong in the US and Australia, while future have seen a sharp upswing in net long positions compared to four weeks again when shorts were at a net record-high.

After taking a bit of a break, hedge funds and money managers are starting to wade deeper into gold waters, according to the latest data from the U.S. Commodity Futures Trading Commission.

During the week through January 26, which is the period covered in the latest CFTC report, Comex February gold futures rose by nearly more than 3%, pushing back above $1,100 an ounce on the back of short covering and some modest new buying.

“But in the context of a rising interest rate outlook in the US, it’s going to be very difficult for gold to hold on to these gains,’’ he said. Societe Generale sees gold averaging at $1,040 in the first quarter and $955 in the last quarter of the year.

Looking ahead, gold may move higher if the dollar drops against other currencies.

“With potential dollar weakness removing some downside pressures and erratic risk appetite providing an additional foundation for the bulls, gold may trade $1,140/oz. once the $1,125/oz. resistance has been conquered,” said Luckman Otunuga, a research analyst at brokerage FXTM.

Currently, gold is testing a key resistance at $1,126. The next key resistances are at $1,140 and $1,160. A decisive break through of $1,120 can push it higher to the next resistances. Significant supports to note are at $1,100 and $1,080.