Senior Trader Daily Update 04 August 2017

Good morning everyone,
 
Thursday saw range-driven trading in gold ahead of Friday’s US Bureau of Labor Statistics employment data release. Market consensus for the headline Non-Farm Payrolls figure anticipates the addition of 180,000 jobs for July, while the Unemployment Rate consensus is for a figure of 4.3% (4.4% was the prior month).
 
Other economic data releases out of the US overnight were mixed. U.S. Markit Service PMI (July) (final) rose to 54.7 (vs 54.2 expected & 54.2 in Jun), U.S. Factory Orders (Jun) were +3.0% (vs +2.7% expected & positive revised -0.3% in May) and U.S. Services ISM Index (July) fell to 53.9 (vs 57.0 expected & 57.4 in Jun).
 
The World Gold Council released its latest Gold Demands Trend report for Q2 which revealed:

• Global gold demand in Q2 2017 was 953 tonnes, a fall of 10% compared with the same period in 2016

• ETF inflows slowed dramatically from last year’s record pace

• Bar and coin investment rebounded from very low levels last year.

• Jewellery demand also strengthened from a weak 2016 to 481t, but fell short of the long-term average.

• Central banks continue to buy gold, but at a more modest pace than in recent years, totalling 94t, a 20% increase on the previous year.

• Overall demand was 953t, a fall of 10% compared with 1,056t in Q2 2016

• Total consumer demand rose by 9% to 722t, from 660t in the same period last year

• Total investment demand fell 34% to 297t compared with 450t in Q2 2016

• Global jewellery demand grew 8% to 481t, from 447t in the same period last year

• Central bank demand climbed 20% to 94t compared with 78t in Q2 2016

• Demand in the technology sector increased 2% to 81t compared with 80t in Q2 2016

• Total supply was down 8% to 1,066t, from 1,160t in the same period last year

• Recycling fell 18% to 280t compared with 343t in Q2 2016

Source: “The Gold Demand Trends Q2 2017” – ( http://www.gold.org/research/gold-demand-trends )
 
XAU/AUD continues its constructive technical work with support being provided by the embryonic trendline (which today comes in at AUD 1586). The 23.6% (AUD 1594) Fibonacci retracement of the AUD 1728 to 1552.50 down move between June 6th and July 20th has been reached, which portends well for further advances towards Fibonacci targets at AUD 1619.50 (38.2%) & AUD 1640.25 (50.0%).
 
Another tedious “flash crash” between 09:00 - 09:05 Sydney time (19:00 - 19:05 NY) was swiftly reversed, leading to a “Long-legged Doji” candlestick being registered on the Daily Chart (arrowed). The area between USD 1270 - 1275 has proven extremely “sticky” throughout this week, suggesting that there is significant wood to be chopped at this level. However, if shorts are accumulating in this region and a catalyst emerges to propel gold higher (i.e. Payrolls data or geopolitical conflagrations), then a stop-loss / shortcovering spike could ensue. This would certainly assist XAU/USD’s cause in taking out the technically and psychologically important USD 1300 level at a third attempt, having already been thwarted just ahead of that crucial level on the 17th of April and the 7th of June. If it is third time lucky for XAU/USD, then momentum / trend following fund buying would be likely to kick in.
 
Returning to geopolitics for a moment, earlier in the week we noted North Korea & Russia as current flashpoints and the Middle East (Iran / Syria) obviously remains on the radar. To this can be added another equally serious situation that is receiving scant coverage in the legacy media. A decades old dispute between nuclear powers China and India, has flared again recently in the contested Doklam area. A recent TV debate between a retired Indian Army Major General and the Director of the Chinese Defence Ministry’s Centre for International Security Cooperation saw the following exchange take place: “Chinese media, think tanks, Xinhua, Global Times, PLA Daily have written the most aggressive and most belligerent stories about threatening India, taking India to war, opening a two-front conflict, teaching India a lesson,” according to retired Major General Ahok Mehta. The response from Senior Colonel Zhou Bo: “General, you have been talking too much! This is not the right way of having this conversation,” “Let me just use a few seconds – you are on Chinese territory, so if you do not want a war, you’ve got to go away from Chinese territory,”.
 
Good luck and have a good weekend.
 
Regards,
Andre