Gold undermined by “risk-on” rally ahead of NFP
Fawad Razaqzada June 2, 2017 7:32 AM
Gold has struggled so far this week after enjoying a two-week winning streak in May. Up until now, the buck-denominated metal has been supported above all by a soft US dollar. But with the greenback showing signs of life after Thursday’s release of strong ADP employment figures, expectations about a June rate hike have risen closer to 100 per cent again. Those expectations would be further cemented if we have a strong nonfarm payrolls report today. As a result, the dollar may rally which could undermine the precious metal.
The perceived safe haven asset is also coming under pressure from on-going “risk-on” rally. This morning saw the FTSE 100 index hit a new record high, as the S&P 500 index future moved into a fresh unchartered territory. Japan’s Nikkei index reclaimed the 20,000 hurdle overnight. Equities remain supported, for the time being, by global interest rates being near historically low levels. The likes of the ECB, BoE and BoJ continue to maintain their asset purchases programmes. Recent improvements in economic conditions are yet to translate into overcooking inflationary pressures. Some believe that this so-called “goldilocks” growth phase would allow global central banks to maintain interest rates low for a while yet. But if global inflationary pressures start to rise more rapidly then interest rates could rise sharply, and undermine the appetite for equities. So, although rising interest rates are seen as negative for noninterest-bearing precious metals, the latter could actually find support from safe haven flows if tighter monetary conditions cause equities to slump. Thus until and unless we see a marked deterioration in appetite for risk, there is a risk we may see a sharp drop in gold prices.
Unless it somehow manages to break through its long-term bearish trend line and massive resistance around the $1274-80 area, gold’s technical outlook will remain bearish. If short-term support around $1260 gives way, say as a result of strong US jobs data today, then we could see a sharp drop that could last several days or weeks even.
Source: eSignal and FOREX.com
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.