Monday, September 7, 2020

Gold Loses its Shine, Down for 3rd Straight Session

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News shaping
the markets today

     

What’s happening: Gold prices closed lower on Friday, recording losses for a third consecutive session.

What happened: The US dollar and gold are both considered safe-haven assets and compete for hedging risk in investor portfolios. After several weeks of remaining under pressure, the US dollar began recovering last week.

The US Labor Department’s stronger-than-expected employment data for August proved to be a double negative for gold. The data not only sparked hopes of a faster recovery of the world’s largest economy, it also eased pressure on the US government to reach an agreement on the new covid-19 relief package. Both these aspects supported the greenback, exerting pressure on the yellow metal.

Why it matters: The US Labor Department reported 1.4 million job additions for August and a decline in the unemployment rate to 8.4%, from July’s reading of 10.2%. The data drove the greenback higher on Friday, putting pressure on the US dollar-denominated prices for all commodities, including precious metals.

Gold prices also trended lower as investors repositioned their portfolios after a sell-off in US stocks. Various analyst comments on US tech stocks being overvalued led to widespread profit taking, which saw US stocks erasing all gains recorded earlier in the week. With this, traders sold off different assets, including gold, to cover their losses.

Gold futures for December delivery declined $3.50, or 0.2%, to settle at $1,934.30 an ounce on Friday, recording its lowest close since August 27. The yellow metal recorded a 2.1% weekly decline.

Meanwhile, December silver fell 0.6% to settle at $26.712 an ounce, after dropping 1.9% in the earlier session. The white metal was down 3.3% for the week.

In other metals, December copper rose 2.9% to close at $3.062 a pound, gaining 1.4% for the week. October platinum gained 1% to $898.20 an ounce on Friday, sliding 4.5% for the week.

What to watch: With US markets remaining closed for the Labor Day holiday today, trading volumes are likely to remain constrained. Gold prices could garner some support from escalating US-China tensions as Washington gears up to impose export restrictions on China’s SMIC (Semiconductor Manufacturing International Corporation).

The Markets Today

     

The Japanese yen will be in focus today, after the currency closed lower versus the US dollar last week.

Context: The Japanese currency traded lower versus greenback last week, giving up all gains recorded in the prior week following the resignation of Prime Minister Shinzo Abe due to health issues.

Details: Forex traders ignored the sharper sell-off in US stock last week, which could have provided support to the safe-haven yen. The rise in US Treasury yields seemed to have driven the greenback higher on Friday.

Meanwhile, Japan released mixed economic reports this morning. The index for leading economic indicators increased to 86.9 in July, reaching its highest level since February, from June’s 84.4. However, the country’s coincident index slipped to 76.2 in July, from the previous month’s reading of 76.6.

Investors continue to worry about rising covid-19 cases globally, despite some upbeat economic reports. While cases have started to decline in the US and Australia, countries like India and Brazil continue to struggle with rising numbers. Japan has reported 71,928 confirmed covid-19 cases so far.

The USD/JPY rose 0.85% to settled at 106.243 on Friday. The pair was trading at 106.20 during the European session this morning.

What to watch: Trading volumes may be low today, as US markets remain closed for Labor Day. Traders await GDP and current account data from Japan, which is due for release tomorrow. Japan's economy is expected to contract by 27.8% in the second quarter, while current account surplus is likely to increase to ¥1,868.6 billion in July, from ¥167.5 billion in June.

Markets also await a key election scheduled for September 14, following the resignation of PM Shinzo Abe.

Other Markets: US indices trading closed lower on Friday, with the Dow Jones index, S&P 500 and Nasdaq 100 down by 0.56%, 0.81% and 1.27%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Spain's consumer confidence, Mexico’s gross fixed investment, Russia’s total vehicle sales and foreign exchange reserves and Turkey’s treasury cash balance.