Last week’s U.S. inflation data revealed consumer prices rose less than anticipated in April, reinforcing the belief that inflation is on a downward trend. This data has fueled speculation that the Federal Reserve may cut interest rates as early as September. Lower interest rates tend to benefit gold by reducing the opportunity cost of holding non-yielding assets.
Market Reactions to Global Events
Despite recent geopolitical tensions, particularly the death of Iranian President Ebrahim Raisi, a potential successor to Supreme Leader Ayatollah Ali Khamenei, safe-haven demand for gold has not notably increased. Instead, the current rally appears more linked to economic factors, such as U.S. inflation trends and China’s measures to stabilize its property sector, which have broader implications for metals markets.
Treasury Yields and Fed’s Stance
U.S. Treasury yields remained steady on Monday as investors awaited further economic data and comments from Federal Reserve officials. Key data points this week include home sales figures and durable goods orders, alongside the Fed’s meeting minutes, which will provide insights into the central bank’s economic outlook and policy direction. The Fed has maintained that interest rates will not be cut until there is greater confidence in inflation easing to the 2% target.
Dollar Trends and Future Rate Cuts
The U.S. dollar edged lower as traders anticipated more clarity on the interest rate outlook. Despite the cooling inflation data, Federal Reserve officials have been cautious about predicting imminent rate cuts. Market expectations have adjusted accordingly, now pricing in a potential rate cut by November. The upcoming Personal Consumption Expenditures (PCE) price index report on May 31 will be a critical indicator for future Fed decisions.
Market Forecast
Given the current economic indicators and the anticipation of further dovish signals from the Federal Reserve, gold prices are likely to remain bullish in the short term. Traders should monitor upcoming economic data and Fed communications for cues on the timing and magnitude of potential rate cuts, which will be pivotal in shaping gold’s market movement.
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Recent declines in oil and refined product inventories at major global trading hubs have sparked optimism about oil demand growth. This reverses the trend of rising stockpiles that had previously pressured crude oil prices. As of Thursday, Brent crude futures were down around 10% from their peak of $92.18 a barrel on April 12.
U.S. Economic Indicators Boost Sentiment
Economic indicators from the United States have fueled optimism over global demand. U.S. consumer prices rose less than expected in April, which has raised expectations of lower interest rates. This expectation was further supported by data indicating a stabilizing U.S. job market. Lower interest rates could weaken the U.S. dollar, making oil cheaper for investors holding other currencies and boosting demand.
China’s Industrial Output and Russian Supply Concerns
China’s industrial output increased by 6.7% year on year in April, accelerating from 4.5% in March, indicating a recovery in its manufacturing sector and potential stronger future demand. Additionally, disruptions in Russian oil infrastructure, such as the recent Ukrainian drone attack on the Tuapse oil refinery, have also contributed to price support.
OPEC+ Meeting and Market Outlook
Investors are now looking ahead to the OPEC+ meeting on June 1 for further direction. With two consecutive weeks of declines in U.S. crude stockpiles and expectations of additional economic stimulus measures from China, analysts are optimistic. Financial markets have placed significant bets on a September interest rate cut by the Federal Reserve, which could further support commodity prices.
Market Forecast: Bullish Outlook
Given the improving demand indicators from the U.S. and China, alongside inventory declines and potential monetary easing, the short-term outlook for crude oil prices appears bullish. Traders should monitor upcoming economic data and OPEC+ decisions, as these factors will likely influence market sentiment and price movements.
Gold built on previous weeks gains and advanced above $2,400.
The near-term technical perspective suggests that the bullish outlook remains unchanged.
Fedspeak and FOMC Minutes could influence XAU/USD’s action next week.
Gold (XAU/USD) price continued to push higher this week and rose above $2,400 on Friday, gaining nearly 2% for the week. Investors will continue to scrutinize comments from Federal Reserve (Fed) officials next week and look for fresh hints on the timing of the policy pivot in the minutes of the April 30-May 1 meeting.
Gold benefited from retreating US Treasury bond yields
Gold started the new week under bearish pressure and lost nearly 1% on Monday. In the absence of fundamental drivers, however, XAU/USD’s action looked to be a technical correction following the upsurge seen in the second half of the previous week.
The data published by the US Bureau of Labor Statistics (BLS) showed on Tuesday that the Producer Price Index (PPI) rose 2.2% on a yearly basis in April. This reading followed the 1.8% increase recorded in March and came in line with the market expectation. The immediate reaction to this data caused the US Dollar (USD) to weaken and allowed Gold to regain its traction. While speaking at the Foreign Bankers’ Association’s Annual General Meeting later in the day, Fed Chairman Jerome Powell noted that the PPI data was mixed and reiterated that the restrictive policy may take longer than expected to bring inflation down. These comments helped the USD limit its losses and capped XAU/USD’s upside.
On Wednesday, the BLS reported that annual inflation in the US, as measured by the change in the Consumer Price Index (CPI), edged lower to 3.4% in April from 3.5% in March. In the same period, core CPI inflation, which excludes volatile food and energy prices, arrived at 3.6% and met analysts’ estimates. On a monthly basis, the CPI and the core CPI both rose 0.3%. The benchmark 10-year US Treasury bond yield declined over 2% after the April inflation report and allowed Gold to push higher toward $2,400. Meanwhile, other data from the US showed that Retail Sales remained unchanged at $705.2 billion in April.
In the second half of the week, Fed officials adopted a cautious tone regarding the timing of the policy pivot and helped the USD find a foothold. In turn, Gold corrected lower on Thursday.
New York Fed President John Williams said that he doesn’t see the need for a rate cut in the near term. Commenting on the April CPI reading, “kind of a positive development after a few months, where the data were disappointing,” Williams told Reuters in an exclusive interview. Richmond Fed President Thomas Barkin told CNBC that the latest CPI data showed that inflation was not where the Fed was trying to get, and Atlanta Fed President Bostic argued that a continued fall in inflation could make it appropriate to reduce the policy rate later in the year.
The action in financial markets remained subdued in the first half of the day on Friday. Boosted by week-end flows, Gold turned north in the American session and reached its highest level in nearly a month above $2,400.
Gold investors await more Fedspeak, FOMC Minutes
S&P Global’s preliminary Manufacturing and Services PMI data for May will be next week’s high-tier data releases from the US on Thursday. In case these data come in below 50 and show a contraction in the private sector’s business activity, the USD could come under renewed selling pressure with the immediate reaction and open the door for a leg higher in XAU/USD. On the other hand, the USD could find demand if PMI surveys point to an acceleration in the private sector’s expansion rate.
Throughout next week, several Fed policymakers will be delivering speeches. According to the CME FedWatch Tool, markets are currently pricing in a 33% probability that the Fed will leave the policy rate unchanged in September. Although Fed officials are unlikely to say whether September will be the right time to lower the interest rates, their comments on the economic outlook and inflation developments could influence rate cut odds. If policymakers reiterate the need to see several more good monthly inflation data before considering a policy pivot, investors could reassess the probability of a rate cut in September and help the USD stay resilient, limiting Gold’s upside. In case officials voice their concerns over the loosening conditions in the labor market and/or the growing uncertainty surrounding the growth outlook, US Treasury bond yields could edge lower and allow XAU/USD to gather bullish momentum.
In the policy statement published after the April 30-May 1 meeting, the Fed said that “in recent months, there has been a lack of further progress toward the Committee’s 2% inflation objective”. On Wednesday, the Fed will publish the minutes of that meeting, and investors will scrutinize policymakers’ discussions on the rate outlook in the face of the first quarter’s strong inflation readings. If the publication shows that some policymakers lean toward a single rate cut in 2024, the USD could gather strength. On the other hand, XAU/USD could extend its uptrend if the report suggests that investors are still in favor of more than one rate reduction.
Gold technical outlook
On the daily chart, the Relative Strength Index (RSI) indicator holds above 60 and Gold remains within the ascending channel coming from mid-April, reflecting the bullish bias. Once Gold confirms $2,400 (static level, psychological level) as support, it could face interim resistance at $2,425 (mid-point of the ascending channel) before $2,430 (static level) and $2,500.
On the downside, strong support seems to have formed at $2,335-$2,330, where the 20-day Simple Moving Average (SMA) and the lower limit of the ascending channel align. If this support fails, technical sellers could take action. In this scenario, $2,300 (psychological level) and $2,290 (50-day SMA) could be seen as next support levels.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
May arabica coffee (KCK24) this morning is up +7.85 (+3.49%), and May ICE robusta coffee (RMK24) is up +77 (+1.97%).
Coffee prices today are extending this month’s rally, with robusta coffee posting a new all-time high. Coffee crop concerns in Brazil and Vietnam are fueling fund buying of coffee futures. Somar Meteorologia reported today that Brazil’s Minas Gerais region received 15.8 mm of rainfall in the past week, or 74% of the historical average. Minas Gerais accounts for about 30% of Brazil’s arabica crop. Robusta coffee is surging to new record highs on fears that excessive dryness in Vietnam will limit the country’s robusta coffee production.
A bearish factor for coffee futures is weakness in the Brazilian real (^USDBRL), which fell to a 6-1/4 month low against the dollar today. The weaker real encourages export selling by Brazil’s coffee producers.
Tight robusta coffee supplies from Vietnam, the world’s largest producer of robusta coffee beans, are a major bullish factor. On March 26, Vietnam’s agriculture department projected that Vietnam’s coffee production in the 2023/24 crop year could drop by -20% to 1.472 MMT, the smallest crop in four years, due to drought. Also, the Vietnam Coffee Association said that Vietnam’s 2023/24 coffee exports could drop -20% y/y to 1.336 MM. In addition, Marex Group Plc forecasts a global 2024/25 robusta coffee deficit of -2.7 million bags due to reduced output in Vietnam.
Fund buying has supported this month’s surge in coffee prices. Last Friday’s weekly Commitment of Traders (COT) report showed funds boosted their long arabica coffee positions by 9,560 net-long positions to a record 66,885 in the week ended April 9. However, the record-long position could also exacerbate long liquidation pressures in a price downturn.
A bearish factor for coffee was last Wednesday’s report from Cecafe that showed Brazil’s Mar green coffee exports jumped +41% y/y to 3.9 million bags. Brazil is the world’s largest producer of arabica coffee beans.
Another negative factor for coffee was last Monday’s report from the International Coffee Association (ICO) that showed global coffee exports in Feb rose +6.8% y/y to 11.33 million bags, and total 2023/24 global coffee exports from Oct-Feb rose +11.1% y/y to 56.2 million bags.
A bearish factor for robusta was last Tuesday’s report from Vietnam’s General Department of Customs that showed Vietnam’s Mar coffee exports rose +17.7% m/m to 188,972 MT. Also, Vietnam’s Q1 coffee exports are up +5.9% y/y at 585,696 MT.
Coffee inventories have rebounded from historically low levels. ICE-monitored robusta coffee inventories on February 21 fell to a record low of 1,958 lots, although they recovered to a 3-month high today of 3,376 lots. Also, ICE-monitored arabica coffee inventories fell to a 24-year low of 224,066 bags on November 30, but they recovered to a 10-3/4 month high last Friday of 639,650 bags.
Larger coffee exports from Brazil are bearish for prices. Brazil exporter group Comexim, on February 1, raised its Brazil 2023/24 coffee export estimate to 44.9 million bags from a previous estimate of 41.5 million bags.
This year’s El Nino weather event is bullish for coffee prices. An El Nino pattern typically brings heavy rains to Brazil and drought to India, negatively impacting coffee crop production. The El Nino event has brought drought to Vietnam’s coffee areas this year, according to an official from Vietnam’s Institute of Meteorology, Hydrology, and Climate Change.
In a bearish factor, the ICO projected on December 5 that 2023/24 global coffee production would climb +5.8% y/y to 178 million bags due to an exceptional off-biennial crop year. ICO also projects global 2023/24 coffee consumption will rise +2.2% y/y to 177 million bags, resulting in a 1 million bag coffee surplus.
The USDA’s Foreign Agriculture Service (FAS), in its biannual report released on December 21, projected that world coffee production in 2023/24 will increase +4.2% y/y to 171.4 million bags, with a +10.7% increase in arabica production to 97.3 million bags, and a -3.3% decline in robusta production to 74.1 million bags. The USDA’s FAS forecasts that 2023/24 ending stocks will fall by -4.0% to 26.5 million bags from 27.6 million bags in 2022-23. The USDA’s FAS projects that Brazil’s 2023/24 arabica production would climb +12.8% y/y to 44.9 mln bags due to higher yields and increased planted acreage. The USDA’s FAS also forecasts that 2023/24 coffee production in Colombia, the world’s second-largest arabica producer, will climb +7.5% y/y to 11.5 mln bags.
More Coffee News from Barchart
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Next, watch the approaching Fibonacci confluence zone from 2.68 to 2.70. The price of natural gas may get there quickly as it is on track to end the week near the highs of the week, and bullish momentum has accelerated as seen in Friday’s wide price range and strong green candle. Further up is the top line of a declining blue dashed trend channel, as well as the 78.6% Fibonacci retracement at 3.00.
Caution Warranted as Natural Gas Further Extends
This looks like a swing back rally in response to the sharp decline from the January 12 swing high of 3.38. Natural gas fell by 1.86 or 54.9% in 25 days, finding a bottom at 1.52. Since the subsequent swing low at 1.58 (C) the price of natural gas has risen by as much as 65.3% as of today’s high. The relative strength index momentum oscillator (RSI) continued to rise today and reached a height not seen since the peak in April 2022.
That peak was followed by a quick 21% decline to the 38.2% Fibonacci retracement. If a similar scenario were to unfold with the current rally, natural gas would complete a 38.2% retracement at 2.23. That is assuming that 2.64 turns out to be a swing high. On the other hand, if the retracement began from the top of the upcoming resistance zone at 2.70, a 38.2% retracement would put natural gas around 2.28.
For a look at all of today’s economic events, check out our economic calendar.
If we can find that value, then it will be a wonderful thing and we can get long again. As for myself, I am currently long, although less long than I once was in my ETF position. With that being said, I like the idea of buying dips near the 200 day EMA and would love to get closer to the $2 level in order to find a little bit of value in this market.
The $2.50 level above could offer a bit of a resistance barrier as well, so do keep that in mind. And I think you’ve got a situation where traders will continue to look at this as a market that’s played through momentum, nothing else. There’s nothing else driving it at this moment. Just like most other financial markets, it’s about the gamification of indices and stocks etc.
So, with that being said, you need to see a pullback in order to find some value. And at that point in time, you can take advantage of it. Chasing the natural gas markets up here is not a wise idea as we are so overbought.
For a look at all of today’s economic events, check out our economic calendar.
Gold (XAU/USD) is currently trading at $2,378.755, up 0.15% for the day. The 4-hour chart highlights key levels that traders should monitor. The pivot point is at $2,373.92, which serves as a critical support level. Immediate resistance is at $2,395.84, followed by $2,410.62 and $2,425.87.
On the downside, immediate support is found at $2,357.95, with further support at $2,336.74 and $2,318.86.
Technical indicators show a balanced outlook. The 50-day Exponential Moving Average (EMA) is at $2,354.84, while the 200-day EMA stands at $2,312.01. The formation of a Doji candle above the pivot point level of $2,373 is likely to drive a buying trend.
Conclusion: The outlook remains bullish above $2,373.92. A break below this level could trigger a sharp selling trend.
Oil prices remained relatively stable in Asian trade on Friday, poised for a mildly positive week. The softer dollar, shrinking U.S. inventories, and increased Chinese stimulus boosted hopes for improved demand. However, the market faced mixed signals, as the International Energy Agency lowered its demand forecast for the year due to economic uncertainty, particularly concerning China, which faced higher U.S. trade tariffs.
Brent and WTI futures gained this week, driven by softer-than-expected U.S. inflation data. This data weakened the dollar and fueled expectations of Federal Reserve rate cuts by September. However, some Fed officials cautioned that more evidence of falling inflation is needed before trimming rates.
Certainly, today’s bullish price action is a sign of strength as natural gas recently busted through three price zones that could have seen resistance, especially the 200-Day line. However, can demand remain strong enough to take out today’s high and keep rising? That remains to be seen.
Rally Extended
The current rally is extended and closer to a top than it has been. As of today’s high, natural gas is up by 62.7% from the April 25 swing low at 1.58. That makes the current rally the largest on a percentage basis since the initial trend low from February 2023. Nevertheless, if the 200-Day MA can continue to act as support, the price of natural gas has a chance of continuing its rise. The next higher target zone is at 2.68 to 2.70. Those price levels are the 61.8% Fibonacci retracement and a 127.2% extension of a 51.8% measured move (purple arrows) that matches the rally beginning in August 2023, respectively. The high target is the top blue dashed falling channel line.
Drop Below 2.39 Should Lead to Deeper Pullback
A decisive drop below the 200-Day MA may provide an initial indication that a retracement may be coming. But a drop below today’s low of 2.39 will provide a clearer short-term bearish signal. Potential support from the 20-Day MA is down at 2.07. Higher price levels to watch on the way down are marked on the chart in black right extended lines from prior swing highs and lows. They include 2.31, 2.23, and 2.17. Fibonacci levels will be added on the chart if a retracement begins.
For a look at all of today’s economic events, check out our economic calendar.
