Impact of US Growth Data on Gold Prices

Asian Demand for Gold as a Currency Hedge

“Precious metals are acting as a currency depreciation hedge. Case in point: fund flows into Chinese gold ETFs are rising once more at their fastest pace since the massive buying activity observed in April. US yields are surging, the dollar broke out of its lull, and yet precious metals prices have remained extremely resilient,” Ghali notes.

Economic Events Next Week

Gold Price Forecast;

Natural gas futures attempt to rally further on Wednesday failed to draw enough buyers to sustain the rally and the market closed lower for the session. Like Tuesday’s strong rally, natural gas speculators tried to drive prices higher on the back of a sharp rise in crude oil futures, but unlike that move, traders decided to shift their focus on the weather and the upcoming storage report, thereby killing the rally.

September natural gas futures settled at $2.914, down $0.017 or -0.58%.

Meteorologists forecast temperatures during the month of August will come in near average after a warmer-than-normal June and July.

Natgasweather.com says: “While weather patterns have been hot the past couple weeks over much of the country, this coming weekend a weather system and accompanied cool shot will sweep down the East Coast with showers. This will bring mostly comfortable conditions over the east-central U.S. for lighter demand. It will still be hot over the West, Central, and South, but national demand will drop to more seasonal levels without hot conditions over the East.

This likely means natural gas demand will be down this week because the cooler weather will be hitting highly populated, high demand areas.

Forecast

Natural gas prices are likely to continue under pressure on Thursday unless the storage number comes in better than expected. However, just like last week’s report and subsequent price action, any rallies are likely to be met with a wall of sellers.

The current daily chart pattern indicates there are multiple levels of potential resistance at $2.934, $2.966, $2.984 and $3.011. Although aggressive counter-trend buyers have been trying to sustain a series of higher bottoms at $2.800, $2.830 and $2.866, the buying doesn’t seem to be strong enough at this time to sustain a rally and change the trend to up.

As far as the U.S. Energy Information Administration’s weekly storage report is concerned, traders should look for a 34 billion cubic feet build for the week-ending July 21. This would put inventories about 4 percent above normal for this time of year. This will compare with a 20 bcf increase the same week a year earlier and a five-year average build of 47 bcf.

The key price level on the chart to watch is $2.934. A sustained move over this level will likely lead to a labored rally. A sustained move under this level will indicate the presence of sellers.

This article was originally posted on FX Empire

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Gold (XAU/USD) has enjoyed a remarkable rally this year, peaking near $2,450 in early May. However, the upward impetus has recently started to wane, with bullion retreating over 4% from its highs in the past few trading sessions. This price correction suggests a shift in investor sentiment, with bulls likely seeking greener pastures.

With underlying and fundamental drivers reasserting themselves, gold’s weakness could persist in the near term. Sticky inflation, which could force the U.S. central bank to maintain a restrictive stance for longer, could reinforce the bearish case for non-yielding assets, creating a hostile environment for the yellow metal.

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How to Trade Gold

For traders entertaining short positions, a crucial price point to watch is the $2,335 support zone. This area represents a confluence of technical indicators, including a key trendline and the 38.2% Fibonacci retracement of the March-May rally. A decisive break below $2,335, accompanied by higher-than-average trading volume, would be a strong selling signal.

If the price falls through $2,335, the next line in the sand is the 50-day simple moving average, currently sitting at $2,325. Breaching this support could trigger a deeper pullback, with potential downside targets around $2,265, a critical Fibonacci level just below this month’s swing low.

However, the scenario isn’t entirely one-sided. If the bulls regain control and push prices higher, initial resistance looms at $2,365, followed by $2,377. A push past this latter ceiling could dampen bearish sentiment and pave the way for a rally toward $2,420. Continued strength could even bring the all-time high back into play.

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GOLD PRICE TECHNICAL CHART

Gold Price Chart Created Using TradingView

Strength Indicated by 20-Day MA Rise Above 200-Day MA

Today’s low is a higher low than the recent swing low at 2.475, a very minor sign of strength as it is not known whether it will remain a low. Also, the short-term 20-Day MA has started to cross above the long-term 200-Day MA today. This is another sign of strength. Potential support around the moving averages therefore is critical for the sustainability of the rally. The 200-Day line is now at 2.455 and the 20-Day line is at 2.47.

Key Support at 2.46

A decisive decline below the recent swing low and moving averages will signal a deeper retracement. Depending on when it happens, a double top may also be triggered. This week’s high would create the second top. However, the double top is just a possibility until a breakdown triggers. At that point an eventual test of support around the 50-Day MA, now at 2.06, is a possible target. Higher price areas to watch for support include the area around the 50% retracement at 2.25 and further down is the 61.8% Fibonacci retracement around 2.10. Notice that the 20-Day MA has not been tested as support since the gap up on April 26.

Further Consolidation is a Possibility

An alternative scenario may see the price of natural gas further consolidate above the 200-Day MA. Initial resistance would be around the blue dashed downtrend line. Since it is a declining line the price level represented will be falling over time. Subsequently, if the 200-Day line remains an area of support the price range would be narrowing.

Keep an Eye on the Weekly Chart

The weekly chart should also be watched. Both last week and this week have large topping tails and the candlestick patterns are bearish shooting stars. Last week’s low of 2.49 was broken to the downside earlier this week but natural gas quickly recovered and is set to close above that low this week. Nevertheless, these are bearish indications but only if there is a decisive drop below the weekly lows.

For a look at all of today’s economic events, check out our economic calendar.

• The natural gas markets initially tried to rally in the early hours on Thursday, but it looks like the $2.50 level will continue to be an area of extreme interest.
• I think at this point in time we are getting close to some inflection point that could determine where we go for the next several weeks.
• This is not a huge surprise, because quite frankly the nonsense that we have seen in the natural gas markets was overdone yet again.

This is not a retail market

I know I’m not supposed to say this, but quite frankly natural gas markets are not a retail market. You have no business trading this but since I know many of you will do it anyway, I will do my best to break down what you are facing. We got overextended and now we need to find some type of natural level to sit. In other words, it’s overbought and now we need to correct.

• 

That being said, you also have to understand weather patterns in the northeastern part of the United States, whether or not the Europeans are going to be coming to Henry in Louisiana to buy more natural gas, as this is the contract you are more likely than not trading, and whether or not storage and transmission lines allow for more or less supply. This is literally what your trading.

However, my email box is almost always full of questions about natural gas, so I am cognizant of the fact that a lot of people are trading it. At this point, I would anticipate that natural gas could very well fall to the $2 region, and I do think that it would be of value there. However, if you follow my work you know that I very rarely trade this with a lot of leverage, but do in fact trade it via an ETF. This allows me to take advantage of price appreciation or the depreciation, but not doing so with a ton of leverage. It’s the leverage that seems to get most people in trouble.

If you have the ability to invest and not trade, this could be a great market, but right now I just don’t see why would put a lot of money into this market try to “catch a falling knife.”

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XAU/USD Current price: $2,347.35

• A bunch of dismal United States macroeconomic data hit the Greenback.
• The focus shifts to the US Personal Consumption Expenditures Price Index.
• XAU/USD under modest selling pressure but not far from its weekly high.

Spot Gold is little changed on Thursday, trading around its daily opening in the $2,340 price zone. XAU/USD extended its weekly slide to $2,322.50 during Asian trading hours, grinding higher afterwards amid a slight improvement in the market’s sentiment. The advance extended up to $2,351.72 with the release of dismal United States (US) data.

The US Bureau of Economic Analysis (BEA) reported that the country’s Gross Domestic Product (GDP) expanded at an annual rate of 1.3% in the first quarter, downwardly revising the previous estimate of 1.6%. Furthermore, Initial Jobless Claims in the week ended May 24 increased to 219K, worse than the 218K expected, while the preliminary estimate of April Wholesale Inventories increased by 0.2%, worse than the 0.1% decline anticipated.

Wall Street came under selling pressure, with the three major indexes trading in the red. At the same time, Treasury yields retreated, limiting USD strength against the bright metal. The 10-year note currently offers 4.54%, down 7 basis points (bps), while the 2-year note yields 4.92%, shedding 5 bps.

Market participants are now waiting for fresh US inflation data, which will be released on Friday. The country will publish the April Personal Consumption Expenditures (PCE) Price Index, which is foreseen at  2.7% YoY, matching March figures. The core annual reading is also expected to remain unchanged at 2.8%.

XAU/USD short-term technical outlook

XAU/USD is weak, according to technical readings in the daily chart. Technical indicators stand within neutral levels with modest downward slopes, not enough to suggest an upcoming directional movement. At the same time, a flat 20 Simple Moving Average (SMA) caps the upside at around $2,355.50, while the 100 and 200 SMAs maintain their upward slopes well below the current level.

In the near term, and according to the 4-hour chart, XAU/USD is neutral. Technical indicators stalled their advances around their midlines while the pair remains below directionless moving averages. The weekly high at around 2,364.00 is the level to surpass for bulls to retake control of the pair.

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: $2,347.35

• A bunch of dismal United States macroeconomic data hit the Greenback.
• The focus shifts to the US Personal Consumption Expenditures Price Index.
• XAU/USD under modest selling pressure but not far from its weekly high.

Spot Gold is little changed on Thursday, trading around its daily opening in the $2,340 price zone. XAU/USD extended its weekly slide to $2,322.50 during Asian trading hours, grinding higher afterwards amid a slight improvement in the market’s sentiment. The advance extended up to $2,351.72 with the release of dismal United States (US) data.

The US Bureau of Economic Analysis (BEA) reported that the country’s Gross Domestic Product (GDP) expanded at an annual rate of 1.3% in the first quarter, downwardly revising the previous estimate of 1.6%. Furthermore, Initial Jobless Claims in the week ended May 24 increased to 219K, worse than the 218K expected, while the preliminary estimate of April Wholesale Inventories increased by 0.2%, worse than the 0.1% decline anticipated.

Wall Street came under selling pressure, with the three major indexes trading in the red. At the same time, Treasury yields retreated, limiting USD strength against the bright metal. The 10-year note currently offers 4.54%, down 7 basis points (bps), while the 2-year note yields 4.92%, shedding 5 bps.

Market participants are now waiting for fresh US inflation data, which will be released on Friday. The country will publish the April Personal Consumption Expenditures (PCE) Price Index, which is foreseen at  2.7% YoY, matching March figures. The core annual reading is also expected to remain unchanged at 2.8%.

XAU/USD short-term technical outlook

XAU/USD is weak, according to technical readings in the daily chart. Technical indicators stand within neutral levels with modest downward slopes, not enough to suggest an upcoming directional movement. At the same time, a flat 20 Simple Moving Average (SMA) caps the upside at around $2,355.50, while the 100 and 200 SMAs maintain their upward slopes well below the current level.

In the near term, and according to the 4-hour chart, XAU/USD is neutral. Technical indicators stalled their advances around their midlines while the pair remains below directionless moving averages. The weekly high at around 2,364.00 is the level to surpass for bulls to retake control of the pair.

Support levels: 2,334.35 2,325.30 2,307.10

Resistance levels: 2,355.50 2,364.00 2,372.90 

Monthly Losses for Brent and WTI

Both benchmarks are headed for monthly losses. Brent futures are on track for a decline of over 5% from the previous month, while WTI is set to drop by more than 3%. This downturn reflects a broader risk-off environment that has exerted downward pressure on oil prices, overshadowing a larger-than-expected drawdown in U.S. crude inventories reported by the American Petroleum Institute (API).

API Reports Significant Inventory Drawdown

According to API data released on Wednesday, U.S. crude oil and gasoline inventories fell last week, while distillate stocks rose. Crude stocks were reported down by 6.49 million barrels for the week ending May 24, surpassing analysts’ expectations of a 1.9 million barrel decrease. Gasoline inventories decreased by 452,000 barrels, and distillate stocks increased by 2.045 million barrels, contrasting with projections of a 1 million barrel draw in gasoline and a 400,000 barrel build in distillates.

OPEC+ Meeting and Global Oil Inventories

Rising global oil inventories through April due to subdued fuel demand may bolster the case for OPEC+ to maintain supply cuts. OPEC+ producers, including the Organization of the Petroleum Exporting Countries (OPEC) and allies like Russia, are set to meet on June 2. Analysts and delegates suggest that current production cuts might be extended until the end of the third quarter to support prices.

Impact of Fed Policies on Oil Prices

Oil markets have been pressured by expectations that the Federal Reserve will maintain higher interest rates for an extended period. Brent crude settled at its lowest in over three months on May 23. A recent Fed survey indicated that U.S. economic activity continued to expand from early April to mid-May, albeit with growing pessimism about the future and modest inflation increases. Higher borrowing costs typically restrict funds and consumption, negatively affecting crude demand and prices. Market expectations now suggest that the Fed may not cut rates until September, rather than the previously anticipated June.

Market Forecast: Bearish Outlook

Given the persistent pressure from high borrowing costs and potential extensions of OPEC+ production cuts, the short-term outlook for oil prices remains bearish. Traders should prepare for continued volatility, with potential support levels being tested as market trends evolve.

Technical Analysis

XAU/USD Current price: $2,347.35

• A bunch of dismal United States macroeconomic data hit the Greenback.
• The focus shifts to the US Personal Consumption Expenditures Price Index.
• XAU/USD under modest selling pressure but not far from its weekly high.

Spot Gold is little changed on Thursday, trading around its daily opening in the $2,340 price zone. XAU/USD extended its weekly slide to $2,322.50 during Asian trading hours, grinding higher afterwards amid a slight improvement in the market’s sentiment. The advance extended up to $2,351.72 with the release of dismal United States (US) data.

The US Bureau of Economic Analysis (BEA) reported that the country’s Gross Domestic Product (GDP) expanded at an annual rate of 1.3% in the first quarter, downwardly revising the previous estimate of 1.6%. Furthermore, Initial Jobless Claims in the week ended May 24 increased to 219K, worse than the 218K expected, while the preliminary estimate of April Wholesale Inventories increased by 0.2%, worse than the 0.1% decline anticipated.

Wall Street came under selling pressure, with the three major indexes trading in the red. At the same time, Treasury yields retreated, limiting USD strength against the bright metal. The 10-year note currently offers 4.54%, down 7 basis points (bps), while the 2-year note yields 4.92%, shedding 5 bps.

Market participants are now waiting for fresh US inflation data, which will be released on Friday. The country will publish the April Personal Consumption Expenditures (PCE) Price Index, which is foreseen at  2.7% YoY, matching March figures. The core annual reading is also expected to remain unchanged at 2.8%.

XAU/USD short-term technical outlook

XAU/USD is weak, according to technical readings in the daily chart. Technical indicators stand within neutral levels with modest downward slopes, not enough to suggest an upcoming directional movement. At the same time, a flat 20 Simple Moving Average (SMA) caps the upside at around $2,355.50, while the 100 and 200 SMAs maintain their upward slopes well below the current level.

In the near term, and according to the 4-hour chart, XAU/USD is neutral. Technical indicators stalled their advances around their midlines while the pair remains below directionless moving averages. The weekly high at around 2,364.00 is the level to surpass for bulls to retake control of the pair.

Support levels: 2,334.35 2,325.30 2,307.10

Resistance levels: 2,355.50 2,364.00 2,372.90 

Copper is popular right now. In intraday trading last week, on May 20, the London Metal Exchange three-month copper contract hit a record high of $11,104.50 per tonne.

The copper concentrate market is also breaking new records in May 2024. The treatment and refining charges (TC/RCs) that smelters charge miners for the processing of copper concentrate are at all-time lows.

Indeed, TC/RCs, which are measured as a discount to the cost of the refined metal, are in negative numbers – copper concentrate costs more than the finished material.

Fastmarkets most recently calculated the weekly copper concentrates TC index, cif Asia Pacific, at a discount of $3.80 per tonne on Friday May 24.

This was down by $0.80 per tonne from the assessment on May 17, and was the lowest level in Fastmarkets’ records going back to 2013.

The high prices of both refined copper and copper concentrate are shaking up the industry. BHP’s failed mega-bid for Anglo American was motivated by the prize of creating the world’s largest copper producer, which would have controlled 10% of global supply.

But while such mega-mergers create economies of scale, it is uncertain whether they boost overall copper supply. In any case, the bid demonstrated mining investors’ desire for more copper exposure.

“From the get-go, the takeover bid from BHP for Anglo has shone a spotlight on an already hot copper market,” Fastmarkets analyst Will Adams said. “The demand trend for the red metal [arising] from the green energy transition remains very bullish, and this is reflected in the recent [rise] in the price.”

Ramping-up production

Another way that mining companies can please copper-hungry investors is by ramping-up production. Indeed, there have been a slew of such project announcements in recent weeks.

MMG, the Chinese owner of the struggling Las Bambas copper mine in Peru, announced in May that its often-delayed expansion project could begin in the second half of 2024.

If it reaches full completion on schedule in early 2025, the expansion could take Las Bambas’ copper production to 400,000 tonnes per year, compared with 300,000 tonnes in 2023. The Las Bambas expansion has been delayed by local community protests.

In mid-May, Southern Copper Corp said that it would push ahead with its Tia Maria copper project, also in Peru. This project has been subject to local protests since 2015, but now the company feels that the time is right to take it forward.

It is not just the price of copper that is encouraging new projects, according to the chief executive officer of Triple Flag Precious Metals, Shaun Usmar.

“The higher gold price should boost copper production,” Usmar said. “According to our analysis, more than half of all future copper supply will come from polymetallic deposits. So a high gold price improves the financial feasibility of a copper-gold mining project.”

Greenfield mining projects

But while expansions are difficult, building new mines is even more so. Usmar estimates that the time for taking a new copper discovery to production can now be almost 20 years, compared with fewer than 10 years a decade ago.

“Developing a greenfield mining project is like the [motto from the movie] ‘Hunger Games’ – may the odds forever be in your favor,” Usmar said. “If you have a brownfield site that is next to existing ore bodies [and] infrastructure, and has community support, then that has a much better probability of success.

“Our analysis of pre-pandemic mining projects worth more than $500 million shows that one in five have been delivered on time and [within] budget,” he added.

“I think there is a fallacy at times, where investors will look at the space and think that a major [miner] has more capacity to bring new supply online, and that [creates] a lower-risk prospect than a single-asset producer, but the data doesn’t support that,” Usmar said. “We have seen massive overruns from big companies bringing on new supply.”

The danger for investors backing such long-term mining development projects is that the copper price could fall in the meantime.

“The current fundamentals of copper are not as bullish as the price suggests,” Adams said. “Stocks have risen sharply on the Shanghai Futures Exchange, the nearby spreads on the LME are not showing tightness, and the low TCs are more to do with excess smelting capacity rather than strong physical demand for refined metal.

“Also, much of the recent strength has been more to do with a short squeeze on CME copper, and the dislocation between where physical stocks are, the brands and the location,” he added. “A lot of the available copper stock is not deliverable against CME shorts – hence the squeeze.”

But a quick boost to copper supply has come from the Chinese scrap market, with the higher prices for copper motivating scrap traders to increase the volume of supply to smelters.

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