Gold Dips Lower, Markets Await ECB Meeting, British Election

Gold prices have reversed directions on Wednesday and posted slight losses. In the North American session, spot gold is trading at $1288.18 per ounce. On the release front, it’s a quiet day. The sole US release, Crude Oil Inventories posted a surplus of 3.3 million, compared to a forecast of -3.1 million. On Thursday, Britain votes in a national election. The US will release unemployment claims, with the estimate standing at 241 thousand.

Gold is traditionally a safe-haven asset, and a tumultuous start to the month of June has boosted gold prices. Gold prices gained ground on a soft non-farm payroll report, and the terror attack in London and uncertainty over the British election has unnerved investors. There are reports that the ECB will lower its inflation forecast on Thursday, and this could help gold resume its recent rally. Over in the US, there are dark clouds as well, albeit of a political nature. President Trump is under increasing scrutiny over alleged connections to Russia during the election campaign, and former FBI director James Comey will testify before a Senate committee on Thursday. The markets are braced for a ‘triple risk Thursday’ (ECB decision, British election and Comey testimony), so traders should be prepared for possible volatility from gold.

It’s been a strange election campaign in the UK. What looked like a cakewalk for the Conservatives has turned into a real dogfight, following terror attacks in Manchester and London. There is tremendous uncertainty in the air, as Britons are shaken and the political landscape has been turned upside down in a matter of weeks. Will Prime Minister May hold off the spectacular charge by Labour? If so, will she win a majority or will the country face a hung parliament? If the latter scenario unfolds, no party will have a majority and May will enter the difficult Brexit negotiations with a weak hand, as she will have to accommodate a hostile opposition in order to govern. A more extreme scenario is that of Labor and the Liberal Democrats joining forces to form a coalition government, leaving the Conservatives in opposition and uncertainty over Brexit. Global markets are following the election campaign with bated breath, and we could see gold prices swing in either direction, depending on the election results. The markets have priced in a May victory, so a majority for the Conservatives could bump gold a bit lower. Things could get very messy, however, if May fails to win a majority, with the ensuing political vacuum as to which party will govern the country. If the political turmoil continues after the votes are counted, investors could get the jitters and send gold sharply higher.

XAU/USD Fundamentals

Wednesday (June 7)

• 10:30 US Crude Oil Inventories. Estimate -3.1M. Actual +3.3M

Thursday (June 8)

• All Day – British Parliamentary Elections
• 8:30 US Unemployment Claims. Estimate 241K

*All release times are EDT

*Key events are in bold

XAU/USD for Wednesday, June 7, 2017

XAU/USD June 7 at 13:55  EST

Open: 1294.13 High: 1295.36 Low: 1287.73 Close: 1288.18

XAU/USD Technical

• XAU/USD edged lower in the Asian session. The pair has shown little movement in the European and North American sessions
• 1285 is providing support
• 1307 is the next resistance line
• Current range: 1285 to 1307

Further levels in both directions:

• Below: 1285, 1260, 1232, and 1199
• Above: 1307, 1337  and 1367

OANDA’s Open Positions Ratio

XAU/USD ratio is unchanged in the Wednesday session. Currently, long positions have a slight majority (53%). This is indicative of XAU/USD reversing directions and climbing to higher levels. 

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