Please be advised of the following Daily Market Brief from the analyst desk at Swissquote Bank, Switzerland’s leading online bank.
Gold weakness is a short-term opportunity
(Yann Quelenn, market analyst)
The precious metal is currently trading around a 10-month low against the US dollar in an environment where several US rate hikes are expected next year. For several days, gold has stayed above $1130, setting up a base. The tail risk for US dollar is important. In our view, there is a decent probability that the XAUUSD will retrace within the next few weeks. Looking back to this time last year, the outlook for a US normalisation was optimistic and as the Fed had failed to deliver, it triggered one of the greatest first halves in 40 years.
Fundamentally, the gold industry is not looking great. Far from the outlook that seemed at first glance negative for next year, gold production is also on its way down. Miners are not finding the same quantities as they did a decade ago. More specifically, the discovery of gold has declined by 85% since 2006. It is also becoming more complicated for mining companies to dig up the yellow metal.
Nonetheless the scarcity of gold is not as close as the yearly gold output accounts for less than 2% of the gold that has been ever produced which in reality implies that there is definitely room for metals to get back into the market.”
Normalisation coming to Sweden
(Peter Rosenstreich, head of market strategy)
In an unexpected twist, the Riksbank extended its QE program for another six months but reduced the pace of purchases over the period to SEK 30bn from 45bn. The initial FX reaction suggests that the market was caught flat-footed by the hawkish move. With three members dissenting and voting for less policy easing and two members voting to end purchases immediately, we can now see the end of the Riksbank’s easing cycle in sight (summer 2017). The solid performance of Sweden’s CPI and growth data indicates that there will be policy divergence between the Riksbank and ECB in 2017. Bearish bets are now building in EURSEK. However, we suspect that the pass through in SEK will be limited due to the cost of holding SEK, plus this trade has been in the market for a while now. It is likely that EURSEK will slowly and painfully grind lower from here heading towards 9.50 support. Timing on this trade will be everything.
For further comments, or to speak to the Swissquote analyst team, please do not hesitate to contact.