Gold Remains Under Pressure Ahead of US Manufacturing PMI

After sharp losses last week, gold is steady on Monday, with a spot price of $1246.87 per ounce in Monday’s European session. The metal continues to trade at levels not seen since February. On the release front, today’s highlight is ISM Manufacturing PMI. The index has been steadily moving higher throughout 2014, and the upward trend is expected to continue in the May release.

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.

Key numbers out of the US were mostly a disappointment late last week. 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 US 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 if the EU didn’t have enough trouble with the region’s listless economies, there was bad news on the political scene as well, as anti-EU parties shocked the establishment by posting huge gains in recent European parliamentary elections. These “euroskeptic” parties did exceptionally well in France, the UK and Greece. With Eurozone countries suffering from weak growth and high unemployment, voters had a chance to lash back in the elections, and their frustration and anger was heard loud and clear at the ballot box. French Prime Minister Manuel Valls called the results an “earthquake” and the elections could weigh on the euro, although so far the currency has remained firm. At the same time, the EU cannot afford a ‘business as usual’ approach after such elections results, so we could soon see changes in economic policies which could affect the euro.

XAU/USD for Monday, June 2, 2014

XAU/USD June 2 at 10:25 GMT

XAU/USD 1246.85 H: 1247.83 L: 1246.53

XAU/USD Technical

• Gold is steady on Monday.
• 1230 is providing support. Next there is support at the round number of 1200.
• 1250 has reverted to a resistance role as the gold moves to lower levels. 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 almost unchanged in Monday trade. This is consistent with the pair’s 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 steady in the European session.

XAU/USD Fundamentals

• 12:40 US Treasury Secretary Jack Lew Speaks.
• 13:45 US Final Manufacturing PMI. Estimate 56.2 points.
• 14:00 US ISM Manufacturing PMI. Estimate 55.7 points.
• 14:00 US Construction Spending. Estimate 0.8%.
• 14:00 US ISM Manufacturing Prices. Estimate 56.8 points.

*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.