Gold lacks sparkle despite improved outlook

Gold is struggling so far to build on last week's strong performance where it managed to fend off the selling that emerged following its technical break below $1,275/oz support, despite record US stocks levels and an attempted break higher by the dollar. Even the strong USGDP on Friday – later described as being due to one-off measures – was ignored with short-covering supporting the metal into the weekend. 
So far this week, however, the initial round of short-covering has failed to attract renewed buying with the spark to send the metal higher still missing. For that to happen we need to see stocks or the dollar moving lower to rekindle safe-haven and diversification demand. 

Below are a couple of charts to bear in mind.

US dollar

Speculative buying of dollar against nine IMM currency futures has picked up in recent weeks with the combined dollar long reaching $32.4 billion, the highest since December 2015. Traders are clearly looking for additional dollar strength, especially against the euro ($15bn equivalent) and the Japanese yen ($11bn equivalent). 

The euro reached a 22-months low last week at €1.111 but once again the selling seems to have run out of steam after it recovered back above €1.12. A meaningful gold supportive short-covering rally remains for now as elusive as the risk of a stock market correction and it will probably require a move back above €1.15 before such focus begin to emerge.