by Vivian Teo
The gold price fell during Asian trading hours on Wednesday as risk sentiment improves in markets following encouraging US data, stock markets and oil price upturns and expectations of more Chinese stimulus measures.
Spot gold was last at $1,226.70-1,227 per ounce, down $4.80 from Wednesday’s close. Trading ranged at $1,225.50-1,233 so far.
“Although we acknowledge that gold prices are holding up well, mainly due to strong ETF buying, we believe that pessimism over the global economy has become too extreme and should correct over the next month, reducing demand for safe havens,” said Boris Mikanikrezai, metals analyst at FastMarkets.
“Against this backdrop, weakness in gold could re-emerge and be excacerbated by selling from money managers on Comex.”
Initial resistance for gold at $1,250, whilst initial support is at the $1,227.70 New York low and then at the $1,220 from early February, MKS Group said on Wednesday.
China’s decision to reduce the reserve ratio on major banks set the tone during Asian trading session on Tuesday and helped the market look through a set of soft PMI throughout the region, said National Australia Bank on Wednesday morning.
Against this backdrop, European equities opened firmer and then a better-than expected set of US data releases provided an additional boost to risk appetite pushing equity indices higher, the bank added.
The People’s Bank of China said on Monday it would cut the reserve requirement ratio – the amount of cash that country’s largest banks must hold as reserves – by 0.5 percentage points to 17 percent effective March 1.
On Tuesday, China’s February official manufacturing purchasing managers’ index (PMI) at 49 had missed its forecast of 49.4 and was lower than January’s 49.4. This is the seven straight month of contraction where the figure was below 50, which signifies contraction.
The February Caixin manufacturing PMI at 48, which was below consensus of 48.4 and January’s reading of 48.4. February was the twelve consecutive month of contraction.
The market expects more Chinese stimulus measures after the dismal PMI data.
“The room for further cuts is enormous given that the level of the RRR after the latest cut is still standing at a historic high. The issue is whether more cuts would translate into real economic good,” said Singapore’s DBS Bank on Tuesday.
US data releases on Tuesday were mostly better-than-expected. Final manufacturing PMI came in at 51.3, ISM manufacturing PMI at 49.5, construction spending at 1.5 percent and ISM manufacturing prices at 38.5. But IBD/TIPP economic optimism disappointed at 46.8.
Data due later on Wednesday includes the Eurozone PPI, and ADP non-farm employment change and crude oil inventories from the US.
In other commodities, benchmark crude oil prices traded to one-month highs amid the positive sentiment in the market, and also on expectations that OPEC production declined last month on weaker output from Iraq.
“The price action in oil adds to the case that the bottom in the crude oil market is now in place,” said ANZ Research on Wednesday.
The Brent crude spot price rose 0.27 percent to $36.68 per barrel, and the Texas light sweet crude increased 0.59 percent to $34.04 so far on Wednesday.
In equities, the Dow Jones Industrial Average rose 2.11 percent to finish at 16,865.08 on Tuesday, and the Shanghai Composite is so far up 1.05 percent to 2,761.826 on Wednesday.
In currencies, the US dollar is 0.08 percent higher at 98.38 recently on Thursday.
In other precious metals, silver fell $0.02 to $14.77/14.79 recently. Platinum increased $4 to $934/939, while palladium gained $5 to $513/518 so far on Wednesday.
On the Shanghai Futures Exchange, gold for June delivery was unchanged at 259.75 yuan per gram, while June silver was flat at 3,328 yuan per kilogram.
