Gold prices breach the 200 day MA, sustainability questioned

Friday, February 05, 2016

Spot gold prices extended gains yesterday after breaching the 200 day MA as the precious metal rallied just over 1% on safe haven buying. Prices traded confidently towards $1,155/oz but as expected faced some headwinds around this level as trend resistance prevented any additional moves on the upside. Activity overnight and early this morning has seen buying appetite temper with spot prices currently hovering just below $1,155/oz at the time of writing. Given previous attempts to sustain prices above the 200 day MA, which have reversed direction over the coming sessions, we anticipate resistance to hold firm here and prices to consolidate some of the recent heady gains.

The dollar extended declines against a basket of major currencies yesterday, registering its worst performance since the financial crisis as the dollar index lost as much as 1%, compounding the previous session’s losses and breaching the 200 day MA. The greenback has lost over 3.3% against its major peers this week as signs of economic frailty promoted the sell-off. Initial weekly jobless claims for the week ending January 30th were slightly higher than expected, coming in at 285K claims and while the increase came as little surprise to investors, given the post-holiday period slowdown, the worse than expected declines in factory orders and durable goods orders was some cause for concern. Factory orders fell 2.9% m/m in December, accelerating the -0.7% decline seen the previous month while durable goods orders fell -5.0% towards the end of the year, signalling a material slowdown for the end of 2015.

Investor attention will be firmly focused on today’s release of December US trade data which investors anticipate will show a slight increase in the trade deficit as a stronger dollar hindered exports. Market participants will be kept busy with January non-farm payrolls figures which are expected to increase by 190,000, less than the 292K jobs created last month. The US unemployment rate is expected to remain stable at 5.0% in January, but any surprise increase even by a small amount will be likely greeted with a fresh round of selling on renewed risk aversion.

Gold faces firm resistance towards $1,155/oz

XAU Curncy Gold Spot Oz D 2016 02 05 07 55 47

DXY sell-off continues, breaching 200 day MA

DXY Curncy DOLLAR INDEX SPOT 2016 02 05 08 43 22

Events for today

0700

DE

Dec

Factory Orders

1330

US

Dec

Trade Balance

1330

US

Jan

Non-farm Payrolls

1330

US

Jan

Unemployment Rate

Topics: Gold, DXY
More from: Kash Kamal