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Gold recovers after closing at a two-year low

 

Monday, September 19, 2022

The news shaping the markets today

Russia’s military forces attacked various regions in Ukraine. Continued geopolitical tensions sent the US dollar index slightly higher this morning.


China’s central bank lowered the borrowing cost of 14-day reverse repos from 2.25% to 2.15%, exerting pressure on the CNY/USD forex pair.


New Zealand’s Performance of Services Index rose sharply to 58.6 in August, from a reading of 52.7 in the previous month. However, the NZD/USD pair declined slightly in forex trading this morning.


Israel’s economy expanded at an annualised rate of 6.8% in the second quarter, following a 2.7% decline in the prior quarter. Despite this, the ILS/USD forex pair remained under pressure.


Russia’s central bank reduced its key interest rate by 50bps to 7.5% at its latest meeting, sending the RUB/USD pair lower in forex trading this morning.

 

What’s happening: Gold recorded gains on the last trading day of the week, after remaining under significant pressure.

What happened: Gold futures moved higher on Friday, following data on US consumer sentiment.

However, the yellow metal still ended the week in red, with speculations of the Fed continuing its aggregative monetary policy tightening.

Why it matters: Gold remained under pressure last week, after hotter-than-expected US inflation data for August increased prospects of the Federal Reserve raising interest rates by at least 75 basis points at its September policy meeting. There were also speculations of a rate hike of as much as 100 bps.

The US consumer price index improved 0.1% in August, following a flat reading in July, and came in higher than market expectations of a 0.1% decline.

The Fed’s aggressive policy tightening has been providing support to the greenback. The US dollar index, a measure of the currency against major rivals, traded close to a 20-year high. Strength in the US dollar typically exerts pressure on commodities and precious metals. Since both are priced in the greenback in global markets, any appreciation in the currency makes them more expensive for foreign buyers.

Gold finished at its weakest level in more than two years on Thursday. Gold futures declined 1.9% to close at $1,677.30, representing the weakest settlement since April 2020 and the biggest single-session percentage decline since July 5.

The yellow metal rebounded somewhat on Friday, after the University of Michigan’s consumer sentiment climbed to a five-month high of 59.5 in September, versus 58.2 in August. The report also showed a dampening in inflation expectations over the past few months.

Gold for December delivery gained $6.20, or 0.4%, to close at $1,683.50 an ounce on Comex on Friday. Despite this, the safe-haven metal recorded a weekly decline of 2.6%.

December silver rose 11 cents, or 0.6%, to settle at $19.381 an ounce, gaining around 3.3% last week. December copper gained 0.8% to reach $3.5165 a pound, down 1.4% last week. October platinum slipped 0.3% to $901 an ounce, while December palladium settled at $2,112.70 an ounce, down 1.6% on Friday.

What to watch: Traders will keep an eye on the Fed’s interest rate decision, due to be announced this Wednesday. The release of major economic reports will also remain in focus.

The markets today

The Canadian dollar will be in focus today ahead of a couple of major economic reports

Context: The CAD/USD forex pair declined to its weakest level in around two years on Friday.

Details: Traders remained cautious on Friday amid prospects of further policy tightening by central banks and data from Canada indicating a decline in wholesale trade. There were also wide speculations of the US Federal Reserve raising rates at it September meeting.

Although Canada performed better than some of other G7 (Group of Seven) members during the first half of the year, there were signs of the Canadian economy losing momentum.

Statistics Canada reported that the country’s wholesale sales contracted by 0.6% in July, with sales declining in five of seven subsectors. Data released by the Canada Mortgage and Housing Corporation also showed housing starts in the country declining by 3% to 267,443 units in August.

The price of crude oil, one of Canada’s major exports, settled slightly higher at $85.11 per barrel on Friday, limiting losses for the loonie.

The CAD/USD forex pair declined by around 0.3% to settle at 1.3263, after hitting its lowest level since November 2020 at 1.3307. For the week, the Canadian currency declined around 1.8%. The S&P/TSX Composite Index fell 0.89% to close at 19,385.88 on Friday.

What to watch: Traders await the release of economic data on raw materials and producer prices from Canada today. The raw materials price index, which declined 7.4% in July, is expected to ease further by 2% in August. Analysts expect producer prices to decline 0.5% in August, after a 2.1% decline in July.

Other Markets: US indices closed lower on Friday, with the Dow Jones index, S&P 500 and the Nasdaq 100 down by 0.45%, 0.72% and 0.55%, respectively.

Support & resistances for today

Technical Levels News Sentiment
EUR/USD – 0.9999 and 1.0006 Negative
GBP/USD – 1.1400 and 1.1411 Negative
Gold – 1677.81 and 1680.81 Positive
Copper – 3.5157 and 3.5277 Positive
Nasdaq 100 – 11817.57 and 11890.70 Positive

Market snapshot

Futures at 0400 (GMT)
EUR/USD (1.0002, -0.14%) Dow ($30,869, -0.17%) Brent ($92.03, 0.7%)
GBP/USD (1.1403, -0.18%) S&P500 ($3,881, -0.24%) WTI ($85.60, 0.6%)
USD/JPY (143.11, 0.12%) Nasdaq ($11,876, -0.48%) Gold ($1,679, -0.3%)

What else to watch today

Hong Kong’s unemployment rate, Eurozone’s construction output, Central Bank of Brazil’s focus market readout, US NAHB housing market index, China’s foreign direct investment as well as Spain’s consumer confidence indicator.


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