Gold and the Yen are Retreating

Data/Event Risks

• ALL: Very low risk today from scheduled events and data.

Idea of the Day

Gold has been lower for the past two weeks, having previously failed to break above the $1,800 level early in the month and not for the first time this year (also failed sustained break in late 2011). Whilst some may still think the fundamentals are strong, with the main central banks still undertaking quantitative easing of some sort, the charts tell a different story.   Momentum indicators (RSI) have been waning recently, with the Aug.-Sept. up-trend broken on a sustained basis. On the fundamentals, it would take a significant turn-around in the dollar to allow gold to make new record highs before the year is out, but this is looking unlikely, with the ‘fiscal cliff’ concerns not having come to fruition. It’s not impossible to imagine gold ending 2012 lower overall.

Latest FX News

• JPY: The yen has weakened vs. the dollar for the past seven consecutive sessions and is once again softer today. Trade data was broadly in line with expectations, but exports falling 10% on the year.   Latest BoJ report has cut assessment of 8 out of 9 regions in latest quarterly report.
• EUR: Decent results in regional elections for the Spanish prime minister, his PP winning 41 of the 75 seats in the Galician assembly.   Marginally euro-positive given reduction in political instability.
• AUD: Government mid-year review on the budget cut health-care spending and made other cut-backs with the aim of securing budget surplus next year. AUD-positive.
• GBP: There were weekend marches against austerity with coalition government having a tougher time of late. Not yet GBP-negative, but worth keeping a close eye on.