GOLD TODAY: Dollar direction could be decisive
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Analysis
Markets are set for a busy day with a host of economic data, including non-farm payrolls, forecast to show the US economy added 195,000 jobs last month. Markets will also be looking to wage growth to confirm the hawkish shift by Federal Reserve officials at last month's Federal Open Markets Committee (FOMC). Hourly earnings are forecast to rise 2.8% on an annualized basis, building on the 2.7% rise in May. At the same time trade tensions continue to escalate. Retaliatory import tariffs have come into effect today - the US will impose a 25% import tariff on $34 billion of Chinese goods. Tariffs on a further $16 billion are expected to take effect in two weeks. Increasing protectionism poses a significant risk to global growth, particularly nations with significant exports. This has particularly ramifications for Germany, prompting the International Monetary Fund to cut its 2018 forecast for German GDP growth to 2.2% from 2.5% previously. Today could be an import date for UK-Brexit negotiations; Prime Minister Theresa May will unveil her plans for the UK's future relationship with the EU to her cabinet. Price weakness has encouraged disinvestment from institutional investors; ETF holdings fell by a further 2 tonnes yesterday to stand at 2,099 tonnes, the lowest since September 2017. Net length among Comex speculators dropped by a further 19,840 contracts or 20% in the week to June 26; funds raised their short bets by 12,043 contracts at the same time that they cut their longs by 7,797 contracts. While dip-buying from the physical market remains supportive, renewed dollar strength is negating the impact of recent US dollar price weakness on local gold prices. The dollar has rallied over 7% against the Indian rupee so far this year, for example. Gold imports into India are down 17.5% in January-May, according to available data. The latest trend reports from the World Gold Council showed first-quarter identifiable gold demand slowed to a 10-year low of 973.5 tonnes; stable jewelry demand, rising consumption from the electronics sector and modest ETF demand growth failed to offset the sharp fall in physical demand for coins and bars from US, Chinese and German investors. Meanwhile, mine production recorded a modest 1% rise due to stronger production from Russia and Canada while new mines continue to ramp up, which will feature across 2018. Conclusion Gold is consolidating, but the Doji candlestick formation implies a lack of uncertainty while the market looks to the dollar for direction in the short term. Provided gold holds long-term UTL support we maintain our positive overall outlook, with equity market volatility and signs of rising inflation likely to prompt investor diversification. All trades or trading strategies mentioned in the report are hypothetical, for illustration only and do not constitute trading recommendations.
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