The gold could be well-buoyed by retreating of the risk appetite by the end of last week amid worries about dovish inflation outlook in US have been triggered, after sudden falling of the average hourly earnings by 0.2% m/m in December, the median forecast was rising by 0.2% following surging by 0.4% in November was the highest since last February before disappointing down revision last Friday to rising by only 0.2% hurting the inflation outlook in US lowering the market expectations of watching near coming interest rate rising in US in the first half of this year.
The inflation outlook in US has been actually depressed by outside sources as over the consuming level, there can lower imported prices from places such as EU which had the first annual CPI falling preliminary in December since October 2009 and over the producing level, the excessive falling of the oil prices is weighing down ion the inflation outlook across the broad not only in US.
The gold which is usually seen as a mirror of inflation theoretically cannot have this properties currently practically, as the dovish inflation outlook is dampening the interest rate outlook and the yields in the secondary market as well supporting the demand for gold with UST 30YR yield existence below 2.60% which is the lowest since August 2012.
The gold can get use also of the expected cheap funds which can be pumped by the ECB in the form of a QE and can be also by PBOC by lowering the interest rate as what has been done by the end of last year for the first time since 2012, after the inflation in China has fallen to the lowest level since 2010 last November to 1.4% y/y, while China PPI is still sending biggest negative rate yearly reached -3.3% last December which is the most dovish reading since September 2012, while the Chinese PPI negative yearly rates have started in March 2012 until now.
From another side, there can be more liquidity to be pumped into the advanced economies but by a financial way through their governments which can have much more ability to impose packages supporting the economy with the current low energy prices which lower the pressure on their budgets improving their financial and crediting situation, as what has happened by the Japanese government by the end of last year by imposing Yen3.5tr plan.
In US, PCE which is the Fed’s Favorite gauge of inflation has underscored the slide of the energy prices which exacerbated later in December and also in January which watched falling by more than 10% until now!, despite the improving of the economic activity in US which pushes the prices up by higher watched demand.
US PCE rose yearlyby 1.2% in November following 1.4% y/y in October and September andrising by 1.5% in August and by 1.6% in July and June after increasing by 1.8% in May, despite the improving of the economic activity but until now the falling of the energy and commodities prices amid lower global economic growth pace is still looking taking its toll leading the inflation outlook down delaying the first interest rate rising in US since 2006 making the gold much more attractive having a space to rise can be bigger in the case of watching slowdown in US can be by lower paid prices ahead to come over the short term at least, by God's will.
While over the short term, the gold could have a bullish sign by rising last Friday above its Parabolic SAR (0.02, 0.2)with current existence above its 100 SMA over the daily chart.
Kind Regards
FX Market Strategist
Walid Salah El Din
Mob: +20 12 2465 9143
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