Precious metals rally; Asia rebounds on China PMI; Oil price stays low

Margaret Yang, CFA, Market Analyst, CMC Markets Singapore

Precious metals climb with uncertainty rising

Precious metals including gold, silver and platinum continue to trend upwards as the US dollar weakened against its major peers. As Trump and Clinton’s recent survey showed that the poll gap is getting narrower, rising political uncertainty surrounding the US election will provide trading opportunities for precious metals for their natural safety and inverse correlation with the US dollar. Metal prices have rebounded significantly from recent lows.

If Trump wins the election, we will most likely see risk-off selling in equities and rally in safe-haven assets. The rising financial and political uncertainties will trigger the sensitive nerve of the Federal Reserve and probably result in a delay of their rate normalization path.

The US equity market has started to price-in the possibility of Trump’s victory in the election and the result is a higher risk premium in the equity market. The S&P 500 has dropped for six consecutive trading sessions.

Both official and Caixin PMI hit two-year highs

Better-than-expected Chinese Manufacturing PMI readings sent Asian stocks higher on Monday. Both official and Caixin PMIs jumped to 51.2, the highest level in over two years. Strong data was backed by surge in domestic demand, as factory output between Sep and Oct expanded at its fastest pace since Mar 2011.

Domestic demand drove the fastest rise in total new orders, more than offsetting a slight decline in overseas orders for Chinese factory goods. The fast depreciation of the Chinese yuan in October may continue to cushion its shrinking exports and support growth in overseas orders ahead of Christmas.

A fast recovery in manufacturing activity is in line with the recent turnaround in PPI readings and the third quarter GDP data, which proves China’s economy has stabilised. Asian markets traded higher on Tuesday, led by the Hang Seng Index (+0.93%).

As expected, central banks including the BOJ and RBA made no interest rate adjustments on Tuesday, preferring to keep the powder dry ahead of the US election next week.