26 May 2021

Gold Shines Brighter, Approaches $1,900

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News shaping
the markets today

     

What’s happening: Gold prices traded higher on Tuesday, hitting a more than four month high.

What happened: Declines in the US dollar and Treasury yields helped gold settle near the key resistance level of $1,900 on Tuesday.

The yellow metal’s appeal as a safe-haven asset was also buoyed by reports showing declines in both consumer confidence and new home sales in the US.

Why it matters: Gold has remained almost flat over the past few previous sessions, with traders awaiting some key news to drive prices.

The Conference Board’s consumer confidence index for the US declined to 117.2 in May, versus a reading of 117.5 for the previous month. Although this was a minor downturn, it missed the consensus estimate of 119.5 by a wide margin, increasing safe haven buying of assets other than the US dollar.

Investor sentiment for the yellow metal was also buoyed by a 6% decline in US new home sales to an annualised rate of 863,000 in April. This, too, missed market views of 959,000.

While investors added gold to their portfolios, the weak economic data provided some assurance to the markets that the US Federal Reserve may not tighten its monetary policy in the near term. Fed policy makers have been trying their best to play down concerns over higher inflation, reiterating that there would be no change in their existing monetary policy.

The US dollar index, which tracks the greenback versus a basket of major peers, declined to near four and a half month lows on Tuesday, making gold more affordable for people in other countries. The US Treasury yields also hit a two-week low, lowering the opportunity cost of holding the non-interest paying precious metal.

Gold for June delivery gained 0.7% to close at $1,898 an ounce on Tuesday. Gold prices in electronic trading surged to a high of $1,899.40 shortly after the settlement. July silver added 0.5% to reach $28.06 an ounce, following a 1.5% rise in the previous session.

Among other metals, July copper declined 2 cents to $4.51 a pound on Tuesday. July platinum added 1.6% to settle $1,196.90 an ounce, while June palladium gained 1.7% to reach $2,777.20 an ounce.

What to watch: Traders will continue to focus on major economic reports, which could impact gold prices in the near term. Markets will also keep an eye on movements in the US dollar and government bond yields.

Gold gained 0.4% to temporarily breach the key $1,900 mark in Asian trading this morning. Investors may wait for the yellow metal’s price to show some resilience above this level. Else, significant profit taking could exert pressure.

The Markets Today

     

The Canadian dollar will be in focus today, after closing slightly lower on Tuesday.

Context: The CAD/USD forex pair edged lower on Tuesday, after data from Canada showed a decline in April’s manufacturing sales.

Details: Last Tuesday, the CAD/USD had surged to its highest level since May 2015. The loonie has gained around 5.7% year to date, recording the best performance among the G10 currencies, with the Canadian dollar receiving support from higher commodity prices and a hawkish stance maintained by the country’s central bank.

“There appears to be little concern at the central bank about the CAD and the message is clear that the central bank will keep policy settings aligned with the economy as it works towards its goals," strategists at Scotiabank said in a note.

Speculators have increased their bullish bets on the loonie to the strongest level since November 2019, according to recent data from the US CFTC (Commodity Futures Trading Commission).

Nonetheless, investor sentiment was hurt by a decline in Canada’s factory sales of 1.1% in April, following a 3.5% rise in March. The decline in manufacturing sales was mainly due to lower sales for transportation equipment, the data revealed.

The price of crude oil, one of Canada’s major exports, remained volatile, exerting pressure on the country’s currency.

The CAD/USD forex pair traded lower by 0.2% to settle at 1.2067 on Tuesday. US crude futures settling higher by 2 cents at $66.07 per barrel on Tuesday may lend some support to the currency pair today.

What to watch: With no major economic reports scheduled for release from Canada today, traders will focus on covid-19 cases and the vaccination drive in the country.

Other Markets: European trading indices closed mixed on Tuesday, with the German DAX 30 and STOXX Europe 600 indices up by 0.18% and 0.03%, respectively. However, the FTSE 100 and French 40 traded lower by 0.31% and 0.28%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

France’s manufacturing climate indicator, consumer confidence and business climate indicator, Mexico’s gross domestic product and overall index of economic activity, America’s MBA mortgage applications and crude oil inventories, Brazil's current account and foreign direct investment, Russia’s corporate profits and gross domestic product as well as Argentina’s retail sales.

 

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