Gold Rangebound After Positive US Manufacturing Numbers

Gold prices are almost unmoved on Tuesday, as the spot price stands at $1247.26 per ounce in Tuesday’s European session. On the release front, the ISM Business Survey Committee came out with a correction, noting that ISM Manufacturing PMI actually improved in May, after initially reporting on Monday that the indicator had lost ground. It’s a light schedule on Tuesday, highlighted by Factory Orders.

Gold is coming off a miserable week, shedding about 3% of its value, as its trades below $1250. Although US GDP looked weak with a rare contraction in Q1, the markets did not show much reaction, attributing the weak data to an unusually harsh winter rather than a problem with economic fundamentals. If this week’s releases meet expectations, we could see gold prices continue to fall. At the same time, gold is sensitive to geopolitical stability, so if the precarious situation in Ukraine deteriorates, tensions could spur demand for gold.

It’s not often that a key indicator drops and magically recovers a day later. However, this was the case with ISM Manufacturing PMI. The well-respected ISM Business Survey Committee reported on Monday that the key index had softened in May, but has since corrected its reading. The index actually improved to 55.4 points in May, up from 54.9 points a month earlier. As well, Final Manufacturing PMI and ISM Manufacturing Prices improved. This points to an expanding manufacturing sector, which is good news for the recovery. The markets will be hoping for more good news from today’s highlight, Factory Orders.

Last week’s US data was a mix. Preliminary GDP, the primary gauge of economic activity, posted its first decline since Q2 of 2009. The indicator came in at -1.0% for Q1, worse than the estimate of -0.6%. Harsh winter conditions took their toll on the economy in Q1, and analysts expect a rebound in Q2. After a strong gain in March, Pending Home Sales softened, coming in at 0.4%. This was nowhere near the gain of 1.1%. On a brighter note, Employment Claims dropped to 300 thousand, easily beating the estimate of 321 thousand. As well, CB Consumer Confidence remains at high levels.

XAU/USD for Tuesday, June 3, 2014

XAU/USD June 3 at 9:05 GMT

XAU/USD 1246.85 H: 1247.26 L: 1241.75

XAU/USD Technical

• Gold continues to show little movement on Tuesday.
• 1230 is providing support. Next there is support at the round number of 1200.
• 1250 is the next resistance line. 1260 is stronger.
• Current range: 1230 to 1250.

Further levels in both directions:

• Below: 1230, 1200, 1182 and 1158
• Above: 1250, 1260, 1275, 1300, 1315

OANDA’s Open Positions Ratio

XAU/USD ratio is pointing to gains in long positions in Tuesday trade. This is not consistent with the pair’s current lack of movement. The ratio has a substantial majority of long positions, reflecting a strong trader bias towards gold breaking out and gaining ground against the US dollar.

Gold has had a quiet start to the week. XAU/USD is unchanged in the European session.

XAU/USD Fundamentals

• 14:00 US Factory Orders. Estimate 0.6%.
• 14:00 IBD/TIPP Economic Optimism. Estimate 46.5 points.
• All Day – US Total Vehicle Sales. Estimate 16.0M.

*Key releases are highlighted in bold

*All release times are GMT

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.