Fibogroup Market Analysis 2017

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Gold has pulled back in the last 3 days on the back of profit taking but by no means is the rally over with so much uncertainty around us at the moment.

At the start of the year we had a hyped up American president who promised to push through dramatic changes which have not eventuated due to some members of the US congress.

This should remind us that there are checks and balances in the government and President Trump doesn’t have a free hand to do what he wants.

Gold was also being held back by expectations that the Fed would hike rates 4 times this year which has only turned into one, with no more expected this year.

Inflation has been a constant problem for the US central bank and according to some will also keep their hands tied as we move into next year,

“Given the fact that inflation should remain relatively low, we do not expect the Fed to be capable of doing much more than one hike in 2018,” said Luc Luyet, a currency strategist at Pictet Wealth Management

“The dollar should be penalized next year by the weaker growth outlook and by the less active Fed, so we would expect the dollar to gradually weaken and that should support gold.” He added.

Technically gold is also looking strong which is obvious by the higher top it made in the beginning of June which is followed by the recent high it made last week.

The most recent double top is going to provide a strong resistance base and should provide the point on which gold continues its uptrend

 

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Gold is remaining well bought in today’s trading on the back of comments made by US President Donald Trump over North Korea where he noted that words would not work in dealing with the North Korean regime. The market took the words as all talks have finished and the next move may be military action.

The non-farm payrolls and unemployment rate due for release from the US later today is predicted to come in strongly but with all of the Geo political activities going around in the world at the moment it is not expected to pressure the gold price too much,

“Should the dollar go up, if the jobs data turns out to be positive, the downside will be limited at the $1,300 level, given all the uncertainties, including North Korea, that are still around," said Ronald Leung, chief dealer at Lee Cheong Gold Dealers in Hong Kong.

As we said yesterday, gold has now found a solid base just below the $1,300 level and this should remain the new bottom for some time to come. The next target is now the resistance level of $1,340 which was reached in September of last year and also immediately after Donald Trump was elected US President.

 

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The gold price hit its highest level in nearly a year in today’s trading session on the back of North Korea’s latest weapons test and further US dollar weakness.

In what seems to be a situation that is spiraling out of control, North Korea launched another nuclear test over the weekend which was its biggest to date and comes just days after they launched a missile over Japan and into the Pacific Ocean.

The news left investors rattled and sent them piling into safe haven assets such as gold.

The markets’ reaction seems similar to when missile launches have taken place in the past, investors sell stock and rush to safe havens,” said Hussein Sayed, chief market strategist at FXTM.

“An H-bomb is undeniably different from the previous missile launches or nuclear tests, it’s a game changer for North Korea’s deterrent strategy. However, the biggest question to investor’s remains what’s next? Will the tensions lead to negotiations or war?” he added.

Gold has now jumped over $50 in the past week as the chances of military conflict on the Korean peninsula draw closer and closer but some analysts advise to proceed with caution because if the situation suddenly calms down as it did in previous times, the gold price may reverse sharply.

"If the tensions in Asia increase because of North Korea, gold and other safe haven assets are supported. But if tensions ease again gold will probably ease as well," said Georgette Boele, senior FX strategist at ABN Amro

"We hold the view a recovery of the U.S. dollar will push gold prices lower towards $1,300 or below in the near term but in this scenario we don't expect an escalation of the situation with North Korea," she added.

 

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The oil price is making another run for the $50 mark today over concerns about the damage that Hurricane Harvey has caused, but below it will struggle to break through this level as the disruption to supply is not as bad as first thought

RBC global head of commodity strategy Helima Croft noted that in the past, natural disasters like hurricanes had a bigger effect on the supply of oil as a larger portion of production came from the Gulf of Mexico

The amount of oil production now coming from the gulf is around 15 percent, well down from an earlier figure of 30 percent on the back of different production methods such as shale oil production,

"We think the developments for crude still look pretty bearish because of how many barrels are simply backing up with these refineries being offline," Croft said

"That's probably going to sort of cap whether or not WTI can break through $50 for a while, barring any sort of major outside catalysts." She added.

At around $50 a barrel, the big oil production companies won’t be too concerned said analysts at Goldman Sachs because at this price, oil is more profitable than it was at $100 due to reduced drilling costs and lower overheads,

“Simplification, standardization and deflation are repositioning the oil industry for better profitability and cash generation in the current environment than in 2013-14 when the oil price was above $100 a barrel,” they said

 

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The British pound has continued its winning streak today after breaking through the $1.30 mark in yesterday’s trading but some analysts warn it may be a dead cat bounce and a reversal of trend may be on the way.

Steve Barrow, head of G10 strategy at Standard Bank, has joined a number of analysts by predicting that the pound will fail to shed the stigma surrounding Brexit, which he believes will be a long and painful process, and will ultimately cause problems for the British currency .

“The real problem for the pound is that Brexit is more of a marathon than a sprint,” Mr Barrow said.

“So while there might be the odd occasion when the pound ‘wins’ a sprint on citizens’ rights, or some other issue, the outcome of the whole race has probably been determined already.” He added.

From a Technical point of view the pound is also looking vulnerable having made a lower bottom towards the end of April compared to the end of September and it looks as if there is a double top forming with the first top being the start of August.

The pound will run into significant pressure at the $1.31 mark which will form the second and lower part of the double top and may also be the cause of the pound’s trend reversal

 

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The gold price has bounced back in today’s trading after racking up losses on the back of a deal between the white house and Congress and some say yesterday was just a small bump in the road and more gains are on the way.

After yesterday’s deal between the White House and congress to reach a deal to extend the deadline on the federal government’s debt ceiling until December 15th, gold was pressured as it was one of the first times that both sides have seen eye to eye since Donald trump became US president.

The good news however did keep a lid on gold for too long, as other news hit the surface, such as allegations that North Korean president Kim Jong Un had ordered more missiles into place in preparation for another launch which left investors running for the safety of gold.

With the situation in North Korea unlikely to die down any time soon, the price of gold looks set to keep moving forward,

"There is a combination of events driving gold higher, including both political uncertainty and hedge fund buying. If these extreme political circumstances continue it could drive the price to $1,400," said Nizam Hamid, ETF strategist at WisdomTree said

Mr Hamid also noted that until now, the biggest part of investors have shied away from gold, preferring to invest in other assets such as stocks and real estate, but with the stock market at record levels they may decide to also join in the gold rush which will only push the price even higher,

"Given where valuations are for other asset classes, there is real potential for gold to continue to rally, especially if mainstream investors get in on the trade." He added.

 

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Gold continues to push higher in today’s trading, hitting its highest level in almost a year on the back of US dollar weakness and warnings that North Korea will launch another missile over the weekend which sent investors fleeing for the safe haven of gold.

The situation now seems to be beyond repair with a new missile launch coming up and after last week’s bomb explosion.

"The flight to quality as a result of North Korea's self-claimed detonation of a hydrogen bomb has caused investors to flee riskier assets and go into your safe haven asset like the gold market” said Phil Streible, senior market strategist at Chicago-based RJO Futures.

Mr Streible also noted that another rate hike from the Fed this year is all but over which will also support gold’s current trend,

"This trade should continue now, with Hurricane Irma coming through and what this will do is it will handcuff the Federal Reserve from having the ability to raise interest rates for the remainder of the year.” He added.

On the chart we can see that gold has reached a strong resistance level which occurred in September last year and if it can make this break in the next few days we are likely to see the price move up to $1.370 and the previous resistance at $1.350 should become the new support level.

 

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The Australian dollar is under pressure today on the back of weaker commodity prices, following on from last Friday’s pullback after the currency made a run for US82c

Iron ore, Australia’s biggest commodity slumped 3 percent on Friday with some analysts predicting that it may have reached a peak.

The savior of the Australian dollar against the greenback may be hurricane Irma which is pounding the coast of Florida and is likely to keep the US dollar under pressure.

From a technical point of view the Aussie dollar is looking vulnerable after last Friday’s rejection at the US81.22c level and a further pullback below US80c is possible.

While fundamentals contributed to the Aussie’s late slide, Greg McKenna, chief market strategist at AxiTrader, says the Aussie is looking vulnerable from a technical and positioning perspective.

“The pin bar on the daily charts looks awful from a technical perspective,” said Greg McKenna, chief market strategist at AxiTrader

“It’s probably too early to call a top just yet given US dollar weakness, but with speculative accounts still very long there is room for a decent pullback toward 80 cents, then 0.7960, within an overall trend higher.” he added.

 

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The gold price is stable in early Asian trading today after falling heavily yesterday after a planned missile test from North Korea failed to eventuate, but that may change over the next couple of days on the back of stronger sanctions imposed by the UN security council.

It what has been classed as a watered-down version, the UN security council that includes China and Russia, unanimously approved a new round of sanctions against North Korea which did not include an oil embargo as the US had sought.

Many believe this will not deter North Korea from their nuclear ambitions and another test may be around the corner and as is the usual case investors will seek safety in gold.

Data out of the US this week which includes CPI numbers on Thursday may also help choose the direction of gold.

Currently inflation in the US sits well below the US Federal Reserve’s target rate at 1.8 percent where it has remained for some time and even a booming jobs market can’t boost the figure

Unless there is a strong rebound in inflation from the previous months the chances of any further rate hikes from the Fed this year will disappear which will also boost the gold price

“The major determinant of gold last week was geopolitical tensions," says research chief Mark To at Wing Fung Financial Group in Hong Kong, "

“And while at the weekend we did not see any crisis triggering event, those tensions are still with us and the slowing of interest rate hikes and other tightening measures are going to be with us as well." He added

 

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The British pound continues to surge today against its US counterpart, following on from yesterday’s gains on the back of booming inflation figures which has raised speculation that an interest rate hike from the Bank of England could come any time now.

At 6.51am (GMT) the British currency was trading at $1.3303, up from $1.3287 in yesterday’s close.

The pound has now jumped nearly 1.5 cents in the last 2 trading sessions on the back of CPI figures from the UK, which hit the market at 2.9 percent against analysts’ expectations for a figure of 2.9 percent and up from 2.6 percent last month.

The news sets the stage for a big show on Thursday when the Bank of England sits down to announce their latest interest rate decision, and although no changes in rates are expected, the mood to lift rates in the following months amongst BOE board members may increase which may drive the pound higher.

“While we doubt that a rate rise is on the cards for later this week, we believe that there is a chance that the vote split could signal a hawkish shift at the bank, with the potential for Chief Economist Andy Haldane to vote for a rate hike,” said Kathleen Brooks, research director at City Index,

Today’s wage growth figures released from the UK may also create some volatility in the pound as they are also connected with rate hikes though it seems the pound will hold onto its gains until Thursday’s rate decision.

“Tomorrow’s labor market data, especially wages, could either challenge or confirm the move we’ve seen today,” he said. “However, ultimately the real decider for sterling is likely to be how much tolerance for inflation the BOE signals on Thursday” said Ranko Berich, head of market analysis at Monex Europe.