Weak Chinese Manufacturing Lifts Gold

February 1st, 2016 by

gold rallyThe markets were focused on gloomy manufacturing data from China on Monday morning, dragging U.S. stock futures and global stocks into the red. This risk-off sentiment helped boost the gold price by about $8 per ounce in morning trading as the metal settled around $1,126.50/oz.

Meanwhile, the silver price was 5¢ per ounce higher at $14.40/oz. Platinum was just above unchanged $877/oz while palladium added more than 1% to $508/oz.

Slump in China

china_factoryData released in China overnight showed that the Chinese manufacturing sector contracted at its fastest pace in January since 2012. As the bellwether of the world’s overall demand for manufacturing, this drop in Chinese PMI does not bode well for global growth prospects.

In another concerning sign from the People’s Republic, one of China’s largest online financial companies was caught administering a Ponzi scheme with investors’ money. Online lender Ezubao sold made-up investments to its nearly 1 million clients, defrauding these investors to the tune of $7.6 billion. The firm went to great lengths to cover up the fact that it was dumping nearly all of investors’ funds into self-enrichment of executives, while some 95% of the investment products it offered were fake.

consumer-spendingMeanwhile, in the States, consumer spending for December (reported as part of Personal Income and Outlays) was essentially flat month-over-month. This followed a 0.5% gain in November. While average disposable income actually grew 0.4% during the month (and a nine-year high of 3.5% over the course of 2015), Americans were saving more rather than making expenditures.

Later this morning, manufacturing data will be released in the U.S. in the form of PMI and ISM indices. Construction spending will be reported, as well. The season for fourth-quarter corporate earnings reports is also upon us, all of which will continue to impact the stock markets.

Struggling Equities

Overall, those stock markets have struggled mightily thus far in 2016.

sell-stocksJanuary was the worst month for equities in the U.S. in five years—even despite a rally better than 2% on Friday and two straight weeks of gains for the stock markets.

During the last month, the Dow Industrials lost 5.5%, its worst January since 2009; the S&P 500 lost 5.1%, its worst January since 2009 as well; and the Nasdaq lost 7.9%, its worst January since 2008.

The dollar was slightly lower at 99.2 on the DXY index on Monday following a rally on Friday due to the euro sliding and the yen falling on the Bank of Japan announcement of negative interest rates. U.S. Treasurys continue to see demand as a safe haven, pushing benchmark 10-year yields down to 1.94%.

Global stock markets are also being weighed down by more losses for crude oil, as WTI and Brent crude were down 3.5% and 2.5%, respectively, in early trading.

Federal Reserve Vice-chairman Stanley Fischer will be speaking about monetary policy at 1 pm today in New York.

Technical Outlook

The bulls will be looking to retest gold’s 12-week highs hit last week, which appears to be happening this morning. Meantime, the bears need to push prices below $1,109/oz in order to invalidate the current bullish sentiment that is driving momentum.

This places support levels at $1,115/oz and $1,109/oz, while key resistance can be seen at $1,125/oz (already being tested this morning) and $1,136/oz (the 61.8% Fibonacci retracement from gold’s October high and December low).

 

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.