24 October 2016
Demand for gold has risen after risk-averse investors battered equity markets worldwide. Photo: CNN
Demand for gold has risen after risk-averse investors battered equity markets worldwide. Photo: CNN

Gold may extend rally if it breaks US$1,242

Gold prices surged more than 16 percent in the first quarter, the biggest quarterly rally since 1986.

Demand for the yellow metal rose after risk-averse investors battered equity markets.

The rally was helped by global developments.

US non-farm payrolls added 215,000 workers in March, beating market expectations of 205,000 new jobs.

By contrast, the unemployment rate increased to 5 percent last month and the number of part-time workers rose by 135,000 to 6.12 million, the highest since August last year.

Strong jobs data released on April 1 weighed on gold prices. The yellow metal once fell to US$1,208 per ounce.

However, gold bounced back above US$1,230 on Tuesday as Asian markets fell on weak oil prices.

Gold may return to an upward trajectory if it breaks the 25-day moving average of US$1,242. It could test US$1,259 to US$1,277.

Support is expected to hold at US$1,215 to US$1,233.

In Germany, factory orders fell 1.2 percent in February, the biggest monthly drop in six months, surprising economists.

The decline shows that the global economic slowdown and market turmoil have been buffeting Europe’s largest economy.

The euro may extend its rally to 1.15 against the US dollar if it manages to settle down above 1.1375 last achieved on Feb. 11.

The currency has already been overbought for some time. Investors are wary of a correction.

Nonetheless, the euro has strong support at 1.126.

Meanwhile, the greenback tumbled to a 17-month low of 110.24 against the Japanese yen on Tuesday, a sign that the market has priced in the Fed’s cautious stance on future rate hikes.

Slumping commodity prices and falling stocks have boosted safe-haven demand for the yen.

A key support level is anywhere from 110 to 111 and if the US unit falls below the 110 benchmark against the yen, it could fall further.

The British pound sterling was up against the US dollar Monday, with some investors saying the market has factored in the EU referendum.

The sterling’s trade-weighted index slipped to its lowest in more than two years in the morning trade. The index has lost about 2 percent since March 30.

The British unit seems to be running out of steam.

It has been overbought for a long time and might retreat to 1.1417 in the short term. A fallback to 1.39-1.4 is possible.

Australia’s central bank left interest rates unchanged for the 10th time at its recent meeting.

In a widely expected move, the Reserve Bank of Australia kept the cash rate at 2 percent. 

The Australian dollar has been rising since touching bottom in January.

It has great support at 0.737 against the greenback but investors should be wary of any short-term correction.

This article appeared in the Hong Kong Economic Journal on April 6.

Translation by Julie Zhu

[Chinese version中文版]

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Sales director, Emperor Capital Group Limited; HKEJ columnist

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