Bottom of Large Triangle Consolidation May Offer Support
The lower uptrend line will soon converge with the 78.6% retracement level presenting a more formidable potential support zone. Also, monthly support (daily swing low) from February was 71.38. It can be combined with the other price levels mentioned above to generate a larger support zone from 72.12 to 71.38. Notice that February’s swing low began an accelerated rally that peaked at 87.89 in April. Maybe a test of the February support zone will complete a round trip and set the stage for the next advance. However, a decline below 71.38 followed by further weakness will trigger a breakdown from the symmetrical triangle consolidation pattern.
Moving averages are showing turning bearish. Recently, the short-term 20-Day MA fell back below the 200-Day MA, and it continues to point down. The 50-Day MA has also begun to turn down. If it crosses below the 200-Day line, another bearish signal will be generated.
Rise Above Today’s High Will Show Strength, But Sustainability Questionable
On the upside, it wouldn’t be a bad idea to allow for a day or a few to occur to see how the market in crude develops. There are no current signs that a spike bullish reversal may be coming soon. An advance above today’s high of 74.39 will provide the next sign of strength. But, given the potential for a test of support at the bottom of the triangle and the lack of buying signs so far, it may not be sustainable just yet.
For a look at all of today’s economic events, check out our economic calendar.
United States job openings contracted by more than anticipated in April.
Treasury yields edged further lower while US indexes also shed ground.
XAU/USD could accelerate its slide once below $2,314.63, the weekly low.
Demand for the US Dollar returned on Tuesday, with risk-off flows moving away from Gold. XAU/USD trades around $2,325, down for the day. Tepid United States (US) growth-related data undermined demand for the American currency on Monday, pushing the pair towards a weekly high of $2.354.60, but speculative interest gave up as the mood deteriorated further early in Asia, extending after Wall Street’s opening.
The US published the first of several employment figures ahead of the monthly Nonfarm Payrolls (NFP) report scheduled for Friday. According to the Bureau of Labor Statistics (BLS), the Job Openings and Labor Turnover Survey (JOLTS) showed the number of job openings on the last business day of April stood at 8.059 million, easing from a previously revised 8.35 million and missing expectations of 8.34 million. The Greenback initially fell with the news but quickly changed course as the US also published an upbeat Factory Orders figure, up 0.7% in April vs the 0.6% anticipated by market participants.
Government bonds surged, sending yields even lower from their recent peaks, although stock markets are unable to lift their heads. The three major US indexes trade in the red, albeit losses are modest.
XAU/USD short-term technical outlook
From a technical point of view, XAU/USD is poised to extend its slide. The daily chart shows it retreated from near a mildly bullish 20 Simple Moving Average (SMA) for the fourth consecutive day. Furthermore, technical indicators extended their slides within negative territory, maintaining their firmly downward slopes. Finally, it is worth mentioning that the 100 and 200 SMA retain their bullish slopes far below the current level, limiting the bearish potential in the long term.
In the near term, and according to the 4-hour chart, the bearish case is even clearer. XAU/USD has fallen below all its moving averages, which anyway remain directionless. Furthermore, a pullback was contained by the 20 SMA, currently at around 2,339.10. At the same time, technical indicators head firmly lower well below their midlines, in line with another leg south should the pair break below the weekly low at 2,314.63
Support levels: 2,314.60 2,305.30 2,289.70
Resistance levels: 2,339.10 2,355.50 2,364.00
XAU/USD Current price: $2,325.17
United States job openings contracted by more than anticipated in April.
Treasury yields edged further lower while US indexes also shed ground.
XAU/USD could accelerate its slide once below $2,314.63, the weekly low.
Demand for the US Dollar returned on Tuesday, with risk-off flows moving away from Gold. XAU/USD trades around $2,325, down for the day. Tepid United States (US) growth-related data undermined demand for the American currency on Monday, pushing the pair towards a weekly high of $2.354.60, but speculative interest gave up as the mood deteriorated further early in Asia, extending after Wall Street’s opening.
The US published the first of several employment figures ahead of the monthly Nonfarm Payrolls (NFP) report scheduled for Friday. According to the Bureau of Labor Statistics (BLS), the Job Openings and Labor Turnover Survey (JOLTS) showed the number of job openings on the last business day of April stood at 8.059 million, easing from a previously revised 8.35 million and missing expectations of 8.34 million. The Greenback initially fell with the news but quickly changed course as the US also published an upbeat Factory Orders figure, up 0.7% in April vs the 0.6% anticipated by market participants.
Government bonds surged, sending yields even lower from their recent peaks, although stock markets are unable to lift their heads. The three major US indexes trade in the red, albeit losses are modest.
XAU/USD short-term technical outlook
From a technical point of view, XAU/USD is poised to extend its slide. The daily chart shows it retreated from near a mildly bullish 20 Simple Moving Average (SMA) for the fourth consecutive day. Furthermore, technical indicators extended their slides within negative territory, maintaining their firmly downward slopes. Finally, it is worth mentioning that the 100 and 200 SMA retain their bullish slopes far below the current level, limiting the bearish potential in the long term.
In the near term, and according to the 4-hour chart, the bearish case is even clearer. XAU/USD has fallen below all its moving averages, which anyway remain directionless. Furthermore, a pullback was contained by the 20 SMA, currently at around 2,339.10. At the same time, technical indicators head firmly lower well below their midlines, in line with another leg south should the pair break below the weekly low at 2,314.63
The US dollar has found its footing after a period of weakness, currently hovering around 104.30 on the Dollar Index (DXY). This resurgence makes silver more expensive for foreign buyers, potentially reducing demand and exerting downward pressure on prices.
US Jobs Data: Pivotal Moment for Silver
This week’s US jobs data release is a critical event for silver investors. The ADP employment report on Wednesday and the non-farm payrolls data on Friday will offer crucial insights into the health of the US economy. Strong job numbers could signal a robust economy, potentially deterring the Federal Reserve from cutting interest rates. This scenario would weaken the appeal of silver as a haven asset and could push prices lower. Analysts suggest a non-farm payroll figure exceeding 200,000 could trigger a price decline below the current $28.35 support level.
Geopolitical Tensions and Global Growth: A Counterweight
Despite the headwinds from the US dollar and potential Fed rate hikes, uncertainties surrounding global growth and geopolitical tensions could reignite silver’s safe-haven appeal. Investors seeking to hedge against these risks may return to silver, potentially providing some upside potential.
Near-Term Uncertainty, Technical Support in Play
The near-term outlook for silver is uncertain. While technical factors offer some temporary support at $28.35, the direction hinges on the upcoming US jobs data. Strong data could trigger a price decline, potentially testing the support level. Conversely, weak data could lead to a rebound, especially if it strengthens expectations of Fed rate cuts.
Traders’ Takeaway: Data-Driven Approach is Key
Traders should closely monitor the release of US jobs data and subsequent Fed policy pronouncements. A data-driven approach will be crucial for navigating the near-term volatility in the silver market. By understanding the interplay between the US dollar, economic data, and global uncertainties, traders can position themselves to capitalize on potential opportunities in the silver market.
Gold price rebound fizzles near $2,355 early Tuesday, despite a mixed tone.
The US Dollar recovers with US Treasury bond yields after a weak US ISM PMI-led sell-off.
The daily RSI battles the 50 level, as Gold price readies for a range breakout.
Gold price is facing a modest selling pressure near $2,355 in Asian trading on Tuesday, pausing its solid rebound staged a day ago. Gold price eagerly awaits the US employment data trickling in this week, starting with the JOLTS Job Openings later on Tuesday, for a fresh directional impetus.
Gold price looks to US jobs data for Fed policy cues
On Monday, Gold price defended the critical daily support line and witnessed a solid turnaround in the latter part of the day after the US Dollar was smashed alongside the US Treasury bond yields, following the release of downbeat Institute for Supply Management (ISM) Manufacturing PMI and the Price Paid component.
Data released by the ISM showed on Monday, the main PMI index dropped from 49.2 in April to 48.7 in May, missing the expected 49.6 print. The ISM Manufacturing Prices Paid eased to 57.0 in May vs. 60.9 previous and 60.0 expected.
Weak data revived bets for a September interest rate cut by the US Federal Reserve (Fed). Markets are currently pricing in about a 52% chance of a 25 basis points (bps) Fed rate cut in September, against a 47% probability of such a reduction last Friday, CME Group’s FedWatch tool shows.
In Tuesday’s trading so far, Gold price is struggling to hold its recovery momentum, as the US Dollar attempts a tepid bounce along with the US Treasury bond yields, as the market mood turns cautious ahead of the key US employment data. The US JOLTS Job Opening is likely to show a slight decrease to 8.34 million on the last day of April, as against the previous reading of 8.488 million.
Additionally, the broader market sentiment will also play a pivotal role in the Gold price action, as markets seek Fed policy cues from the upcoming employment data due for release this week. The ADP employment report will be published on Wednesday and Nonfarm Payrolls data will feature on Friday. The data will help gauge the US economic performance, which will have a significant impact on the Fed’s policy action, the value of the US Dollar and the non-interest-bearing Gold price.
Gold price technical analysis: Daily chart
As observed on the daily chart, the Gold price continues to range between the 21-day Simple Moving Average (SMA) and 50-day SMA at $2,357 and $2,334 respectively.
The 14-day Relative Strength Index (RSI) has managed to crawl back above the midline but it seems to be struggling to defend it, at the moment.
If Gold sellers manage to crack the 50-day SMA at $2,334 on a daily closing basis, a test of the $2,300 level will be inevitable.
Further south, a drop toward the May 3 low of $2,277 will be in the offing.
Alternatively, acceptance above the 21-day SMA at $2,357 could put the May 24 high of $2,364 on buyers’ radars.
A sustained move above that level will fuel a run toward the rising wedge support-turned-resistance, then at $2,396.
(This story was corrected on Tuesday at 6:42 GMT to say that ‘In Tuesday’s trading so far’, not Monday’s)
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
Gold price rebound fizzles near $2,355 early Tuesday, despite a mixed tone.
The US Dollar recovers with US Treasury bond yields after a weak US ISM PMI-led sell-off.
The daily RSI battles the 50 level, as Gold price readies for a range breakout.
Gold price is facing a modest selling pressure near $2,355 in Asian trading on Tuesday, pausing its solid rebound staged a day ago. Gold price eagerly awaits the US employment data trickling in this week, starting with the JOLTS Job Openings later on Tuesday, for a fresh directional impetus.
Gold price looks to US jobs data for Fed policy cues
On Monday, Gold price defended the critical daily support line and witnessed a solid turnaround in the latter part of the day after the US Dollar was smashed alongside the US Treasury bond yields, following the release of downbeat Institute for Supply Management (ISM) Manufacturing PMI and the Price Paid component.
Data released by the ISM showed on Monday, the main PMI index dropped from 49.2 in April to 48.7 in May, missing the expected 49.6 print. The ISM Manufacturing Prices Paid eased to 57.0 in May vs. 60.9 previous and 60.0 expected.
Weak data revived bets for a September interest rate cut by the US Federal Reserve (Fed). Markets are currently pricing in about a 52% chance of a 25 basis points (bps) Fed rate cut in September, against a 47% probability of such a reduction last Friday, CME Group’s FedWatch tool shows.
In Tuesday’s trading so far, Gold price is struggling to hold its recovery momentum, as the US Dollar attempts a tepid bounce along with the US Treasury bond yields, as the market mood turns cautious ahead of the key US employment data. The US JOLTS Job Opening is likely to show a slight decrease to 8.34 million on the last day of April, as against the previous reading of 8.488 million.
Additionally, the broader market sentiment will also play a pivotal role in the Gold price action, as markets seek Fed policy cues from the upcoming employment data due for release this week. The ADP employment report will be published on Wednesday and Nonfarm Payrolls data will feature on Friday. The data will help gauge the US economic performance, which will have a significant impact on the Fed’s policy action, the value of the US Dollar and the non-interest-bearing Gold price.
Gold price technical analysis: Daily chart
As observed on the daily chart, the Gold price continues to range between the 21-day Simple Moving Average (SMA) and 50-day SMA at $2,357 and $2,334 respectively.
The 14-day Relative Strength Index (RSI) has managed to crawl back above the midline but it seems to be struggling to defend it, at the moment.
If Gold sellers manage to crack the 50-day SMA at $2,334 on a daily closing basis, a test of the $2,300 level will be inevitable.
Further south, a drop toward the May 3 low of $2,277 will be in the offing.
Alternatively, acceptance above the 21-day SMA at $2,357 could put the May 24 high of $2,364 on buyers’ radars.
A sustained move above that level will fuel a run toward the rising wedge support-turned-resistance, then at $2,396.
(This story was corrected on Tuesday at 6:42 GMT to say that ‘In Tuesday’s trading so far’, not Monday’s)
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
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The US Dollar turned south after a dismal ISM Manufacturing PMI.
Investors await for US employment-related data spread throughout the week.
XAU/USD aims higher in the near term, but additional gains still unclear.
Spot Gold started the day on the back foot, shedding some ground amid a better market mood, as reflected by the positive tone of equities. Investors welcomed in-line with expectations United States (US) inflation-related data released last week, as the country reported that the Personal Consumption Expenditures (PCE) Price Index rose 2.7% YoY in April, matching March’s increase and the market expectation, while the monthly advance was slightly lower than anticipated.
XAU/USD changed course mid-European morning, accelerating its recovery after the release of mixed US data. On the one hand, S&P Global upwardly revised the May Manufacturing PMI to 51.3 from a preliminary estimate of 50.9. On the other, the official ISM Manufacturing PMI in the same month posted at 48.7, contracting from the 49.2 posted in April and below the expected 49.6. As a result, the US Dollar fell against all its major rivals, shedding ground alongside Wall Street. At the time being, the three major indexes trade in the red.
Meanwhile, US government bond yields retreat. The 10-year Treasury note currently offers 4.41%, down from an intraday peak of 4.50%, while the 2-year note yields 4.82%, down 7 basis points (bps) for the day.
The US macroeconomic calendar will revolve around employment-related figures. The country will release the JOLTS Job Openings report on Tuesday and the ADP survey on private job creation on Wednesday. Then, the usual weekly unemployment data will precede the monthly Nonfarm Payroll (NFP) report scheduled for Friday.
XAU/USD short-term technical outlook
The daily chart for the XAU/USD pair shows that the bullish potential remains limited despite Gold trading in the green. The pair remains below a flat 20 Simple Moving Average (SMA), while the longer moving averages maintain their upward slopes well below the current level. In the meantime, technical indicators lack directional strength and are still confined to neutral levels.
The 4-hour chart shows the bounce limited the near-term bearish potential, while additional gains do not seem likely. Technical indicators offer firmly bullish slopes but stand within neutral levels, barely overcoming their midlines. At the same time, XAU/USD is meeting sellers around a directionless 200 SMA, while the shorter moving averages also lack directional strength.
Support levels: 2,334.35 2,325.30 2,307.10
Resistance levels: 2,355.50 2,364.00 2,372.90
XAU/USD Current price: $2,346.70
The US Dollar turned south after a dismal ISM Manufacturing PMI.
Investors await for US employment-related data spread throughout the week.
XAU/USD aims higher in the near term, but additional gains still unclear.
Spot Gold started the day on the back foot, shedding some ground amid a better market mood, as reflected by the positive tone of equities. Investors welcomed in-line with expectations United States (US) inflation-related data released last week, as the country reported that the Personal Consumption Expenditures (PCE) Price Index rose 2.7% YoY in April, matching March’s increase and the market expectation, while the monthly advance was slightly lower than anticipated.
XAU/USD changed course mid-European morning, accelerating its recovery after the release of mixed US data. On the one hand, S&P Global upwardly revised the May Manufacturing PMI to 51.3 from a preliminary estimate of 50.9. On the other, the official ISM Manufacturing PMI in the same month posted at 48.7, contracting from the 49.2 posted in April and below the expected 49.6. As a result, the US Dollar fell against all its major rivals, shedding ground alongside Wall Street. At the time being, the three major indexes trade in the red.
Meanwhile, US government bond yields retreat. The 10-year Treasury note currently offers 4.41%, down from an intraday peak of 4.50%, while the 2-year note yields 4.82%, down 7 basis points (bps) for the day.
The US macroeconomic calendar will revolve around employment-related figures. The country will release the JOLTS Job Openings report on Tuesday and the ADP survey on private job creation on Wednesday. Then, the usual weekly unemployment data will precede the monthly Nonfarm Payroll (NFP) report scheduled for Friday.
XAU/USD short-term technical outlook
The daily chart for the XAU/USD pair shows that the bullish potential remains limited despite Gold trading in the green. The pair remains below a flat 20 Simple Moving Average (SMA), while the longer moving averages maintain their upward slopes well below the current level. In the meantime, technical indicators lack directional strength and are still confined to neutral levels.
The 4-hour chart shows the bounce limited the near-term bearish potential, while additional gains do not seem likely. Technical indicators offer firmly bullish slopes but stand within neutral levels, barely overcoming their midlines. At the same time, XAU/USD is meeting sellers around a directionless 200 SMA, while the shorter moving averages also lack directional strength.
The pennant pattern takes the form of a small symmetrical triangle that follows a relatively sharp advance, referred to as the pole. This is a bullish trend continuation pattern that does not become valid until there is a decisive break out of the pattern. Given its small size, a breakout of the pattern will happen within five days or so.
Since this is a bullish pattern, an upside breakout is initially anticipated. Also, the pattern forming around support of the moving averages, especially the 200-Day MA, increases the chance for a bullish breakout. However, a failure of the pattern is always possible. A decline through the lower boundary line signals a pattern failure and increases the chance for a deeper retracement in natural gas.
As it stands now, an upside breakout is triggered on a rise above today’s high, with strength further indicated on a rally above the 2.85 minor swing high. A breakout would be confirmed with a rise above the recent trend high of 2.92, followed by a daily close above that price level.
Target From Pennant
We can calculate a measuring objective from the pattern to identify an initial target of 3.75. To calculate a potential target the pole for the pattern is assumed to have begun at 1.97 on May 2. That is the initial daily breakout that began a period of accelerated upward momentum culminating with the 2.92 trend high. In summary, the pennant identifies a sharp advance that is followed by a consolidation rest period, and then has the potential to lead to another sharp advance. The expectation is that an upside breakout has the potential to rise in an amount equal to or greater than the preceding rally.
For a look at all of today’s economic events, check out our economic calendar.
OPEC+ is currently reducing production by 5.86 million barrels per day (bpd), approximately 5.7% of global demand. This includes 3.66 million bpd of cuts initially set to expire at the end of 2024, and voluntary reductions by eight members totaling 2.2 million bpd, which were to end in June 2024. The group has now extended the 3.66 million bpd cuts until the end of 2025 and prolonged the 2.2 million bpd cuts by three months, until the end of September 2024, with a phased rollback over the following year.
Market Reactions
Despite the extended cuts, analysts suggest the decision has a bearish undertone. The market was not expecting OPEC+ to start unwinding the cuts in the fourth quarter of 2024. Goldman Sachs analysts echoed this sentiment, noting that the detailed plan to phase out the voluntary cuts undermines efforts to maintain low production if market conditions soften.
Middle East Tensions
In the Middle East, ongoing conflict between Israel and Hamas adds uncertainty. Mediators, including the U.S., urge for a ceasefire, but Israel remains firm on not formally ending the war while Hamas is in power. This geopolitical tension influences market stability, but its impact on oil prices is currently secondary to OPEC+ decisions.
Demand Projections
OPEC+ is betting on a robust demand forecast, expecting global demand to grow by 2.25 million bpd, matching the current voluntary cuts. However, the risk remains that demand growth may falter due to tighter monetary policies, geopolitical conflicts, and uncertain economic signals from major consumers like China.
Asian Demand Concerns
Asia, the top oil-consuming region, shows weak demand growth. Data indicates that Asia’s crude imports for the first five months of 2024 were only marginally higher than the same period in 2023. This raises questions about OPEC’s optimistic demand forecast.
Market Forecast: Bearish Outlook
Given the detailed plan to unwind production cuts and concerns over demand growth, particularly from Asia, the short-term market outlook is bearish. Oil prices are likely to face downward pressure unless there is a significant and sustained increase in global demand, particularly from China and other major Asian economies. OPEC+ may need to adjust its strategy if demand does not meet expectations.
The US Dollar turned south after a dismal ISM Manufacturing PMI.
Investors await for US employment-related data spread throughout the week.
XAU/USD aims higher in the near term, but additional gains still unclear.
Spot Gold started the day on the back foot, shedding some ground amid a better market mood, as reflected by the positive tone of equities. Investors welcomed in-line with expectations United States (US) inflation-related data released last week, as the country reported that the Personal Consumption Expenditures (PCE) Price Index rose 2.7% YoY in April, matching March’s increase and the market expectation, while the monthly advance was slightly lower than anticipated.
XAU/USD changed course mid-European morning, accelerating its recovery after the release of mixed US data. On the one hand, S&P Global upwardly revised the May Manufacturing PMI to 51.3 from a preliminary estimate of 50.9. On the other, the official ISM Manufacturing PMI in the same month posted at 48.7, contracting from the 49.2 posted in April and below the expected 49.6. As a result, the US Dollar fell against all its major rivals, shedding ground alongside Wall Street. At the time being, the three major indexes trade in the red.
Meanwhile, US government bond yields retreat. The 10-year Treasury note currently offers 4.41%, down from an intraday peak of 4.50%, while the 2-year note yields 4.82%, down 7 basis points (bps) for the day.
The US macroeconomic calendar will revolve around employment-related figures. The country will release the JOLTS Job Openings report on Tuesday and the ADP survey on private job creation on Wednesday. Then, the usual weekly unemployment data will precede the monthly Nonfarm Payroll (NFP) report scheduled for Friday.
XAU/USD short-term technical outlook
The daily chart for the XAU/USD pair shows that the bullish potential remains limited despite Gold trading in the green. The pair remains below a flat 20 Simple Moving Average (SMA), while the longer moving averages maintain their upward slopes well below the current level. In the meantime, technical indicators lack directional strength and are still confined to neutral levels.
The 4-hour chart shows the bounce limited the near-term bearish potential, while additional gains do not seem likely. Technical indicators offer firmly bullish slopes but stand within neutral levels, barely overcoming their midlines. At the same time, XAU/USD is meeting sellers around a directionless 200 SMA, while the shorter moving averages also lack directional strength.
The latest forecast from NatGasWeather for June 3-9 predicts above-normal temperatures for most of the U.S., with highs in the upper 70s and 80s in the Midwest to Northeast, and upper 80s and 90s in other regions, excluding the cooler Northwest. A hot upper ridge is expected to build over the western U.S. later in the week, while the eastern U.S. will see cooler temperatures. These conditions are expected to bolster national demand for natural gas, especially in key regions experiencing higher temperatures.
Production Trends and Supply Concerns
Another reason for the overnight surge in natural gas futures may be easing production concerns. Analysts noted supportive weekend production trends, which helped alleviate bearish fears stoked by signs of increasing output last week. EBW Analytics Group analyst Eli Rubin highlighted that lower production levels over the weekend contributed to the sharp rebound in early trading on Monday.
Despite these bullish signals, concerns about high production levels and ample supply linger. U.S. natural gas production has ramped up, with analysts from Tudor Pickering Holt & Co. noting increased output in anticipation of higher summer demand. The U.S. Energy Information Administration (EIA) reported an 84 billion cubic feet (Bcf) increase in inventories for the week ending May 24, significantly above the five-year average and surpassing consensus estimates.
Market Volatility and Price Movements
The natural gas market has experienced increased volatility, with daily price movements expanding to a 10-20 cent range. This heightened volatility reflects the market’s uncertainty regarding future weather conditions and production levels. Although natural gas futures have rallied at times due to higher demand forecasts and increased LNG export activity, these gains have often been short-lived as traders focus on the oversupply issue.
LNG Export Activity
LNG export activity has shown improvement, with gas flows to export plants rising from 11.9 bcfd in April to 12.7 bcfd in May, primarily due to the resumption of operations at Freeport LNG’s plant in Texas. However, exports remain below the December 2023 record of 14.7 bcfd due to ongoing maintenance at various facilities.
Market Forecast
Given the substantial inventory levels and rising production, the short-term outlook for U.S. natural gas prices remains cautious. While current oversupply conditions suggest potential downward pressure, there is room for a rally if demand rises consistently and production gradually declines. Traders should stay vigilant and monitor weather patterns and LNG export activities, as these factors will be critical in determining market movements in the coming weeks.
