Last week, several U.S. economic reports were released. What do they imply for the gold market?
Yesterday, we covered the recent developments in the labor market. What about other economic data? First, on Tuesday, the Institute for Supply Management said its manufacturing index increased from 53.2 percent in November to 54.7 percent in December, the highest level in two years. It means that the manufacturing sector ended 2016 on an upbeat note, which may signal further acceleration this year. Second, the index for services did not improve, but remained strong. The non-manufacturing ISM index was unchanged at 57.2 percent, where any reading above 50 percent indicates expansion. Third, U.S. construction spending rose 0.9 percent in November. In consequence, the level of spending hit the highest level in more than a decade. On the other hand, factory orders decreased 2.4 percent, mainly due to a 4.5 percent decline in orders for durable goods.
However, the price of gold corrected last week, despite positive economic data, on balance. Some analysts believe that it shows the resilience of gold, which has already reached its bottom and is likely to rally now, as it did at the beginning of 2016. It’s possible, but from the fundamental point of view this is not very likely. The correction could be caused by short-covering and some safe-haven demand due to fears about the hard Brexit.
To sum up, the recent bunch of U.S. economic data paints a rather positive picture. And the global trends are also encouraging, even if the current market optimism is excessive. There are sign of reflation as commodity prices are increasing – thus, we may see the rise in capital spending triggered by higher energy prices. This looks like a negative environment for gold. Stay tuned!
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Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does it aim to do so) whether gold is likely to move higher or lower in the short- or medium term. In order to determine the latter, many additional factors need to be considered (i.e. sentiment, chart patterns, cycles, indicators, ratios, self-similar patterns and more) and we are taking them into account (and discussing the short- and medium-term outlook) in our trading alerts.
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