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Gold reaches 8-month high amid US dollar weakness

 

Tuesday, January 10, 2023, 8.45am GMT

The news shaping the markets today

The UK is considering supplying Challenger 2 battle tanks to Ukraine for its ongoing war with Russia. The US dollar index traded higher on the news.


South Korea posted a current account deficit of $620 million in November, following a surplus of $880 million in the previous month, which exerted pressure on the KRW/USD pair.


The Philippines said its trade deficit had narrowed to $3.68 billion in November, from $4.71 billion in the year-ago month, sending the PHP/USD pair higher in forex trading this morning.


UK’s retail sales grew 6.5% year-over-year in December, compared to 4.1% growth in November. Despite the latest figure being the strongest since January, the rate was below the inflation rate of 10.7% in November, which exerted pressure on the GBP/USD forex pair.


Indonesia’s retail sales rose by 1.3% year-over-year in November, down from 3.7% growth in the previous month, sending the IDR/USD pair lower in forex trading this morning.

 

What’s happening: Gold prices recorded gains on Monday amid softness in the US dollar.

What happened: Gold started the first full trading week of the year at its strongest intraday level since May 9.

However, one of the previous metals moved lower on Monday, after recording gains earlier in the session.

Why it matters: Gold prices climbed around 2% on Friday after US jobs data showed average hourly earnings rising 0.3% to $32.82 in December and services activity contracting in the month.

The US economy added 223,000 jobs, the least since December 2020, while the unemployment rate eased to 3.5% in December.

Precious metals received a boost at the start of first full trading week of 2023 from weakness in the greenback, which sent safe-haven gold to an 8-month high. Weakness in the US dollar generally makes commodities, including gold, cheaper for holders of foreign currencies.

The ICE US Dollar Index, which measures the greenback’s performance versus a basket of major rivals, fell around 0.8% to 103 on Monday. Benchmark US 10-year Treasury yields were also trading close to three-week lows.

The US Federal Reserve’s hawkish stance through last year had adversely impacted gold. However, the latest economic data releases have increased speculations of slower rate hikes by the US central bank, supporting sentiment for gold. Traders are now expecting a 25bps rate hike at the Fed’s policy meeting in February.

Gold prices for February delivery rose $8.10, or 0.4%, to settle at $1,877.80 per ounce on Monday. Silver prices for March delivery slipped 11 cents to $23.87 per ounce, after remaining in the positive zone for most of the session.

Copper for March added 12 cents to $4.03 per pound, while palladium for March delivery fell to $1,775.40 per ounce and platinum for April settled lower at $1,098.6 per ounce.

What to watch: Federal Reserve Chair Jerome Powell’s speech at the central bank conference in Stockholm will remain in focus today.

Traders await the release of US inflation data, due this Thursday, which is expected to provide direction to gold prices. Analysts expect the annual inflation rate to ease to 6.7% in December, from 7.1% in November.

The markets today

European stocks will be in focus after closing higher on Monday

Context: European equities started the new trading week on a positive note, climbing to their strongest level since May 2022.

Details: The European economy is likely to benefit significantly from border reopening in China. Hong Kong and mainland China resumed quarantine-free travel, signalling the end of the country’s strict zero-covid policy, with borders remaining closed for around three years.

The Eurozone unemployment rate came in at 6.5% in November, unchanged from the earlier month’s record low level and compared to 7.1% in the year-ago month.

Germany’s stocks rose sharply on Monday, following the release of higher-than-expected industrial production in November. Industrial production in Germany climbed by 0.2% in November, compared to a 0.4% decline in the previous month and beating the consensus estimates of 0.1%. Germany’s DAX 40 gained 1.25% to close at 14,792.83 on Monday.

France’s current account deficit grew to €6.8 billion in November, from €3.4 billion a month ago. The country’s trade deficit widened to €13.8 billion in November. However, the CAC 40 gained 0.68% to 6,907.36 on Monday, ending near an 11-month high.

The STOXX Europe 600 index added 0.88% to close at 448.35 on Monday, with most sectors closing in the positive zone. Technology stocks were the top performers, gaining more than 3%, which travel and leisure stocks adding around 2.5%.

London’s stocks extended gains for the fifth session in a row on Monday. The benchmark FTSE 100 gained 0.33% to 7,724.94, amid a surge in real estate and energy shares.

What are expectations: With no major economic data from the Eurozone today, traders will focus on US reports and macroeconomic factors. Eurozone’s industrial production and balance of trade data, scheduled for release on Friday, will also remain in focus.

Other Markets: US indices closed mixed on Monday, with the Dow Jones index and S&P 500 down by 0.34% and 0.08%, respectively, and the Nasdaq 100 up by 0.62%.

Support & resistances for today

Technical Levels News Sentiment
USD/JPY  – 131.70 and 131.88 Positive
GBP/USD – 1.2160 and 1.2177 Positive
Silver – 23.772 and 23.787 Positive
WTI Crude Oil   – 74.20 and 74.41 Negative
Dow Jones – 33487.57 and 33559.68 Negative

Market snapshot

Futures at 0400 (GMT)
EUR/USD (1.0733, -0.02%) Dow ($33,598, -0.21%) Brent ($79.35, -0.4%)
GBP/USD (1.2166, -0.16%) S&P500 ($3,904, -0.26%) WTI ($74.42, -0.3%)
USD/JPY (131.88, -0.01%) Nasdaq ($11,149, -0.33%) Gold ($1,877, -0.1%)

What else to watch today

Saudi Arabia’s industrial production, Turkey’s unemployment rate, industrial production and labour force participation rate, France’s industrial production, Spain’s industrial production, South Africa’s manufacturing production and SACCI business confidence index, US NFIB small business optimism index, Redbook index, IBD/TIPP economic optimism index, wholesale inventories and API crude oil stock change, Brazil’s inflation rate, as well as Mexico’s gross fixed investment.

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