Gold prices landed severely lower on Tuesday, trading at a $1,294.60 an ounce, on a seven-month low following economic reports on retail sales and manufacturing released from the US.
At the same time the shiny metal was under significant pressure from climbing rates in the Treasury advancement .Yields were boosted on Tuesday as well as the entire Treasury yield curve from 2-year notes to 30-year bonds, but most notable the broadly watched 10-year made a significant move and has broken into a new trend. The 10-year Treasury yield rises back above a key psychologically important level at 3%.Rising government bond yields have the effect of reducing demand for bullion which doesn’t offer a yield.
Furthermore, the U.S. Retail Sales rose for a second consecutive month in April, suggesting the economy is accelerating and boosted further the US dollar. Adding to this, the Empire State manufacturing index rose in May, similarly indicating to an improving economy.
While there are no signs of overheating, investors may be concerned that the Federal Reserve may try to slow down the economy by raising interest rates more aggressively.
One of the most talked about and analyzed pending issues on the global economic interest remain the trade wars. With the US trying to turn the situation to its advantage, the only current progress achieved is a hardened stance from both sides including China but as well as leaving the market on further uncertainty. In our opinion the two sides must settle down and understand each other for world-wide benefit as it is only logical that, if the biggest economies of the world are to collide, the global economic system will be affected an eventually hurt. It also must be noted, that Apple’s CEO Tim Cook has publicly urged Donald Trump to rethink the imposed tariffs as they can backfire on the US affecting also the private sector which is currently seen booming.
Fears of higher inflation are also surging within the market as the US government is strengthening economically, as financial data suggests. In normal conditions, higher inflation must be followed by increased wages otherwise economic uncertainty prevails. Uncertainty, is what gold prices need in order to kick start increased volatility and especially on the upward. Gold has been weakening for some time now and has broken below the 1300 psychological number somewhat indicating a new trading perspective for the precious metal.
Surprisingly and according to Thomson Reuters GFMS Gold Survey published on May the 8th it is forecasted that gold could average at $1,360 and peak at $1,500 per ounce. They are basing these expectations on political uncertainty including the Middle East tensions and Brexit. We share the opinion that Gold has not said its last words above $1300.
After the sideways movement from April 23rd until May 15th, gold’s prices dropped significantly breaking in one day consecutively, the 1303.50 and the 1294.55 support lines. For the time being, prices seem to stabilize below the 1294.55 resistance line and continuously testing it, without finding success in clearly breaking it.
We see the case for gold to continue in a sideways movement for the next couple of days and then start rising again as the US Dollar bullish momentum could start fading away and uncertainty may rise further.
Should the bulls take over the market we could see gold prices breaking the 1294.55 resistance line and explore the 1303.50 resistance hurdle. Should the bears be in the driver’s seat we could see the bullion driving south breaking the 1282.15 support line and aiming for the 1274.50 support zone.