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Gold challenges 200DMA - Miners Gain

The risk aversion in Asian markets has rippled its way to European markets this morning. Market sentiment is dented for the second consecutive session on poor Chinese macro data. Following yesterday’s weak import data, the flame of growth concerns has again been fanned as inflation cools in the world’s second largest economy. The consumer price index (CPI) rose 1.6 percent in September from a year earlier, against forecasts of a 1.8 percent rise. The producer price index (PPI) fell 5.9 percent, in line with expectations and after a 5.9 percent fall in the previous month and tends to underscore weakness in domestic demand.

The effects on the FTSE constituents is broad with miners under pressure again and the likes of Burberry losing face as one of its key markets looks more than a little problematic. The fashion house generates around a third of its sales from the Asia Pacific region and has a significant presence in China.  Burberry (-1.96%) is expected to announce slowing sales when it posts an update on Thursday.

Glencore initially started the day languishing at the bottom of the index but has since pushed higher despite the perception of a Chinese slowdown. The weaker dollar is aiding the metals complex and copper prices are slightly higher on the day.

The gold price has broken out of 10 month downtrend and is now presenting a credible challenge on the 200 Day moving average at $1176/oz. A rise through this average, would essentially be considered bullish for the precious metal and would mark the first time since May that price action has breached this psychological metric. A sustained hold (unlike in May) would indicate a move higher is on the cards with $1200/oz a likely target.

Despite the cut to hold at GMP Securities, there seems to be fresh interest in the precious metals stocks this morning. UBS sees potential for a rally in mining, specifically gold stocks. Randgold (1.3%) is presently working on rebuilding the AngloGold Ashanti mine in Ghana. It’s estimated to hold potentially 20 million ounces. Fresnillo is also garnering some flow rising 1.16% in early trade.

Depending on the angle you take, the labour picture in the UK was a conglomeration of good and bad. The UK’s unemployment rate dropped to 5.4%, the lowest since 2008 and now leaves the employment rate (73.6%)in the country at its highest since the records began in 1971. But the fact that pay growth has slowed tends to overshadow this. Wage growth excluding bonuses slowed to 2.8% against the consensus expectation for a rise 3%. The BoE now face a similar sticking point as the FOMC. The labour market certainly looks healthier but inflation remains far below the mandated 2%. The initial reaction in the pound was to drop against the dollar but it has since recovered the $1.53 level. The chill winds from China are still also a factor and all in all, it may prove premature to talk about monetary tightening while uncertainty plagues global markets.