Forex Marketz Daily Forex News – Fully Markets Update
XAU/USD (1,064.83)
Points to consider in this article
- US Dollar strength along with weak demand will hurt commodities like gold in early 2016.
- Gold has seen no light at the end of the tunnel since the US Federal Reserve (Fed) raised interest rates.
- The metals rout could extend as producers cut output and costs.
The Fed has raised interest rates which is supporting the US Dollar as the Fed begins its tightening cycle. This is putting a cap on commodity prices like gold (XAU/USD). This could be the end of the commodities boom and as China moves away from manufacturing. This was supported in the last manufacturing PMI which came in below expansion at 48.2. This week, traders will be watching the December non-farm payroll report on Friday with keen interest.
We also saw crude oil take a beating in 2015. This was the second year in a row of a double digit recline thanks to a persistent supply glut. IN the last quarter we saw a telling sign as the US crude and WTI Brent crude spread narrowed to 24 cents. This should last through the first month or so of the New Year as excessive barrels of Brent go into storage in the United States.
There is another cause for volatility in oil as the Venezuelan oil minister has suggested oil producers meet in January. This could put upward pressure on price, albeit short lived.
We are seeing a slowing in growth in China. This is putting downward pressure on metals as cost cuts are coming across the supply chain. The December PMI came in at 48.2. This was the tenth straight month of contractions and below the November number at 48.6. The rout in copper should be prolonged while China continues to restructure its economy. Demand for this metal should remain weak through the first quarter (Q1) of 2016.
Gold Technical Analysis
The price of XAU/USD is still weak after a near six year low in December. We will see upcoming global data as well as a gradual Fed rate hike plan for 2016 hurting the non-interest paying yellow metal in Q1 2016. Right now gold is stuck in a trading range since mid-November. This is thanks to the market pricing in the Fed’s rate hike in December. Throughout early 2016 we should see a trading range from $1,088 per ounce to $1,045 continue.
Moving averages, pictured on the above XAU/USD chart, remain flat as well as other momentum signals. Gold is lacking its own momentum right now and should move with the broader market.
