Risk aversion sees safe haven assets start the year strong

Monday, January 04, 2016

Spot gold prices got off to a strong start to the year with early moves above $1,071/oz today as tensions between Iran and Saudi Arabia saw demand for the safe haven asset improve. After what has been a dismal year for the yellow metal, posting annual losses for three straight years, investors are hoping that as market uncertainty dissipates the precious metal will gain some upward traction. Prices were largely influenced by the uncertainty surrounding the Fed’s interest rate decision but with the US central bank taking the initial step to increase interest rates last month after six years of near zero rates the tentative market outlook that dominated much of 2015 could finally give way to a more confident outlook. While we have seen a modest rally this morning, driven by increasing geopolitical risk factors in the Middle East, physical demand could improve over the coming weeks and months as cautious stability starts to emerge.

Not a very Happy New Year for Chinese markets as circuit breakers were triggered and trading was abruptly halted after the CSI 300 index plummeted 7% lower in overnight trade. Caixin’s manufacturing PMI for December came in at 48.2, slightly below the 48.9 expected by market participants, as manufacturing activity held below the 50.0 point mark that separates contraction from expansion for the tenth straight month. The dismal start to the year has shaken confidence in policymaker’s abilities and after considerable intervention throughout 2015 market participants will want to see signs of progress but volatility remains high and Chinese economic growth is forecast to show further slowdown in 2015, back to the growth level seen in the 1990’s.

The Japanese yen strengthened significantly against the USD as safe haven demand saw the currency trade towards 118.70 overnight and in the early hours of the morning. After remaining well supported above 120 against the greenback towards the end of December investors piled into the currency after data released overnight illustrated a very bleak picture for the Chinese economy. Geopolitical tensions rising between Saudi Arabia and Iran could have also been a catalyst for the surge in yen strength as it hit a two and a half month high against the dollar and touched key support just above 118.70.

CSI 300 index sell off sharply, triggering circuit breakers

SHSZ300 Index Shanghai Shenzhen 2016 01 04 08 15 53

China's Caixin PMI holds below 50.0

MPMICNMA Index Caixin China Man 2016 01 04 08 15 20

Spot gold prices supported by rising geopolitical tensions

XAU Curncy Gold Spot Oz D 2016 01 04 07 49 07

Events for today

0130

JP

Dec

Nikkei Japan PMI

0145

CN

Dec

Caixin China Mfg PMI

0855

DE

Dec

Markit Manufacturing PMI

0900

EZ

Dec

Markit Manufacturing PMI

0930

UK

Dec

Markit Manufacturing PMI

1300

DE

Dec

CPI

1445

US

Dec

Markit Manufacturing PMI

1500

US

Dec

Construction Spending

1500

US

Dec

ISM Manufacturing

Topics: Gold, PMI, JPY
More from: Kash Kamal