Gold Posts Strong Gains on Weak Services PMI

Gold has posted strong gains on Wednesday, trading at a spot price of $1139.53 an ounce in the North American session. In economic news, ADP Nonfarm Payrolls slipped to 205 thousand, but beat expectations. ISM Non-Manufacturing PMI fell to 53.5 points, missing the forecast. We’ll get a look at Unemployment Claims on Thursday.

Gold continues to gain in value, and has risen to 3-month highs. The metal posted gains on Wednesday, taking advantage of some weak US numbers. ISM Non-Manufacturing PMI, a key gauge of the services sector, dipped to 53.2 points in January. This marked the index’s worst showing since March 2014. ADP Nonfarm Payrolls, which precedes the official NFP report later this week, dropped in January to 205 thousand, compared to 257 thousand a month earlier. The figure did beat the estimate of 193 thousand, but recent employment data has been lukewarm, and if the official NFP report on Friday misses expectations, nervous markets could send gold prices upwards. Employment numbers are being closely monitored by the Fed, which will have to decide if the economy is ready for another rate hike in March. In the heady days following the Fed’s historic rate hike, there was talk of up to four rate hikes in 2016, but this appears unlikely, given current economic conditions and the collapse of oil prices.

Market jitters in January has been great news for gold, as the base metal recorded impressive gains of 5.3% last month. 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. Jittery investors have responded to uncertain economic times by dumping risk assets due and snapping up gold, traditionally a safe-haven asset.

XAU/USD Fundamentals

Wednesday (Feb. 3)

• 8:15 US ADP Nonfarm Employment Change. Estimate 193K. Actual 205K
• 9:45 US Final Services PMI. Estimate 53.7 points. Actual 53.2 points
• 10:00 US ISM Non-Manufacturing PMI. Estimate 55.1 points
• 10:30 US Crude Oil Inventories. Estimate 3.7M. Actual 7.8M

Upcoming Key Events

Thursday (Feb. 4)

• 8:3o US Unemployment Claims. Estimate 279K

*All release times are EST

*Key events are in bold

XAU/USD for Wednesday, February 3, 2016

XAU/USD February 3 at 12:00 EST

Open: 1127.36 Low: 1124.31 High: 1140.75 Close: 1139.53

XAU/USD Technical

• XAU/USD showed limited movement in the Asian and European sessions. The pair has posted strong gains in North American trade.
• 1134 has switched to a support role following strong gains by the pair
• There is resistance at 1151
• Current range: 1134 to 1151

Further levels in both directions:

• Below: 1134, 1098, 1080 and 1043
• Above: 1151, 1175 and 1191

OANDA’s Open Positions Ratio

XAU/USD ratio has shown strong movement towards short positions. This is consistent with the strong gains by the pair, which has resulted in the covering of long positions. The ratio shows long positions with a solid majority (58%). This is indicative of strong trader bias towards gold 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.