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Gold Rally Dulled by Strong US Data

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Gold Rally Dulled by Strong US Data
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The gold price built on Monday's substantial gains overnight, which helped the precious metal log a 10.7% monthly gain for February. This is the best monthly performance for gold since January 2012. But after hitting a session high of $1,248 an ounce, profit taking emerged. This selling pressure was compounded when the ISM manufacturing Index was reported to be not as horrible as expected, and news that construction spending in the US jumped 1.5% to hit the highest level since 2007.

Momentum traders have piled in this morning in New York, sending gold down through support at the overnight low of $1,232 to pressure the $1,226 support level. This late-breaking action has compelled a reevaluation of resistance levels. New resistance levels are former support at $1,237, placing the next point of resistance at $1,243.

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Asian markets were higher as the worst Chinese PMI report in four years fanned the flames of expectations of even more stimulus from the central bank. Just yesterday, the Peoples Bank of China lowered the amount of reserves banks needed to keep on hand, which boosted risk appetite.

In the US, the ISM Manufacturing Index showed contraction for the fifth month in a row today. This index hasn't had such a bad losing streak since the depths of the financial crisis. However, the rise from 48.2 to 49.5 was seen as good enough to cause Wall St. to open higher. Stocks were helped when construction spending unexpectedly jumped 1.5% to the highest level since 2007.  This news caused the dollar to jump, which put further pressure on gold.

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On the positive side, the SPDR gold ETF saw over 15 metric tons of inflows in one day yesterday. India's gold imports were reported to have risen 62% to 93.3 metric tons in January. In related news, Deutsche Bank on Friday called for its clients to buy gold, noting "There are rising stresses in the global financial system; in particular the rising risk of a U.S. corporate default cycle and the risk of a sharp one-off renminbi devaluation due to the sharp increase in China's capital outflows. Buying some gold as 'insurance' is warranted."

Oil futures bounced higher this morning on expectations of further Chinese stimulus and reports that shale oil production in the US has fallen, but couldn't hold on to the gains. WTI was up as much as 1.4% before sliding back into negative territory. Crude prices weren't helped when an OPEC official said that the next meeting in June was still too early to discuss production cuts among it members. He said that the cartel would have to see actual production numbers from Iran, whose goal is to bring production back up to pre-sanctions levels, and also to see if Russia was already cheating on the agreement to freeze production at January levels.

Tomorrow has several reports with the ability to move the markets: The ADP private sector payrolls, the EIA crude oil stockpiles report, and Chinese GDP.

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

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