Gold Higher on Soft US Manufacturing Report

Gold has posted gains on Monday, trading at a spot price of $1126.84 an ounce in the North American session. On the release front, US Core PCE Price Index came in at 0.0%, while Personal Spending posted an identical reading. In the US, ISM Manufacturing PMI dipped to 48.2 points, short of the estimate.

Gold has started the New Year in fine form, as the base metal recorded impressive gains of 5.3% in the month of January. Gold prices have benefited from the turmoil which has gripped the markets due to the plunge in oil prices and the Chinese slowdown. Global demand remains weak, and this was underscored on Monday, as US and Chinese manufacturing numbers posted soft numbers. In the US, ISM Manufacturing PMI slipped to 48.2 points, its lowest level since June 2009. This was the second straight reading below the 50-point level, which separates between contraction and expansion. There was no relief from China, the world’s second largest economy after the United States. Two key Chinese indicators, Manufacturing PMI and Caixin Manufacturing PMI, remained below the 50-line, pointing to continuing contraction in the Chinese manufacturing sector. Weaker manufacturing demand points to a slowdown in the Chinese economy. Nervous investors have responded to uncertain economic times by dumping risk assets due and snapping up gold, traditionally a safe-haven asset.

The Federal Reserve played it safe in January, staying on the sidelines and holding rates at 0.25%. Market speculation has now shifted to the March policy meeting. Will we see another rate hike at that time? The Fed probably cannot answer this question just yet, so the markets will have to show some patience. The inflation picture remains problematic, with the Fed saying that inflation levels will remain low and may not reach the target of 2.0% until 2018. Given these Fed’s continuing concerns about a lack of inflation, it’s hard to foresee another rate hike in March, absent a strong improvement in key US indicators. The manufacturing sector is another weak spot in the US economy, as underscored by a weak ISM Manufacturing PMI on Monday. Other December manufacturing numbers were also dismal. Last week, Durable Goods dropped 1.2%, while Core Durables plunged 5.1%, its weakest showing since August 2014. These soft numbers underscore ongoing weakness in the US manufacturing sector, which has not improved despite positive economic conditions.

XAU/USD Fundamentals

Monday (Feb. 1)

• 8:30 US Core PCE Price Index. Estimate 0.1%. Actual 0.0%
• 8:30 US Personal Spending. Estimate 0.1%. Actual 0.0%
• 8:30 US Personal Income. Estimate 0.2%. Actual 0.3%
• 9:45 US Final Manufacturing PMI. Estimate 52.7 points. Actual 52.4 points
• 10:00 US ISM Manufacturing PMI. Estimate 48.6 points. Actual 48.2 points
• 10:00 US Construction Spending. Estimate 0.1%. Actual 0.6%.
• 10:00 ISM Manufacturing Prices. Estimate 34.7 points. Actual 33.5 points
• 13:00 US FOMC Member Stanley Fischer Speaks
• Tentative – US Loan Officer Survey

*All release times are EST

*Key events are in bold

XAU/USD for Monday, February 1, 2016

XAU/USD February 1 at 12:50 EST

Open: 1117.61 Low: 1116.90 High: 1128.85 Close: 1126.84

XAU/USD Technical

• XAU/USD posted slight gains in the Asian session. After leveling off in the European session, the pair has resumed upward movement in the North American session.
• There is resistance at 1134
• 1098 is providing support
• Current range: 1098 to 1134

Further levels in both directions:

• Below: 1098, 1080, 1043 and 1024
• Above: 1134, 1151 and 1175

OANDA’s Open Positions Ratio

In the XAU/USD ratio, long positions continue to command a solid majority (64%). This is indicative of strong trader bias towards gold prices  continuing to gain ground.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.