Gold loses its shine amid US dollar strength

The news shaping the markets today

Russia allegedly fired several hypersonic missiles at Ukraine’s Odesa shopping centre and warehouse. Concerns around the ongoing war sent WTI crude oil futures higher this morning.

China’s producer price inflation declined to a twelve-month low of 8.0% in April, from previous reading of 8.3%, lending support to the CNY/USD forex pair.

South Korea’s unemployment rate came in at 2.7% in April, remaining at a historical low for the third month in a row. The KRW/USD pair declined in forex trading this morning, mainly on strength in the US dollar.

Australia’s Westpac-Melbourne Institute Index of Consumer Sentiment fell 5.6% in May, maintaining its downward trajectory for the sixth straight month. Despite this, the AUD/USD forex pair remained elevated.

The Philippines reported a whopping 358.2% increase in its manufacturing production in March, following 82.9% growth in the previous month. Manufacturing output expanding the most since August 2021 sent the PHP/USD pair higher in forex trading this morning.

What’s happening: Gold prices moved lower on Tuesday, extending losses from the previous session.

 What happened: The strong rise in the US dollar on Monday resulted in gold falling to its weakest close since February.

Traders now await US inflation data due today, which is expected to impact the Federal Reserve’s rate hike plans and determine the fate of the greenback.

Why it matters: The US dollar continued to climb on Tuesday, exerting further pressure on gold. A higher greenback has a downward impact for commodities, which are priced in the currency in the global markets. A stronger US dollar made the yellow metal more expensive for foreign currency holders.

The ICE US Dollar Index, which measures the greenback’s performance versus a basket of six major rivals, gained around 0.2% on Tuesday, after trading close to a 20-year high on Monday.

The benchmark 10-year Treasury rate eased, after hitting multiyear highs on Tuesday. Volatility in Treasury rates have remained in focus this year, with the US Federal Reserve looking to aggressively increase interest rates at its upcoming meetings to combat surging inflation.

Concerns around a possible global slowdown, surging inflation and aggressive tightening of monetary policy by several major central banks are impacting investor risk appetite. Despite gold being considered a safe haven, it is highly sensitive to rising interest rates.

Gold for June delivery fell $17.60, or 0.9%, to settle at $1,841 an ounce on the Comex, while July silver lost 40 cents to close at $21.42 an ounce.

“From a technical perspective the key $1,850 level has now held on several occasions, so that’s just attracting some short-covering,” according to analyst Ole Hansen.

 What to watch: Investors await US inflation data, due to be released later today, which can significantly impact gold prices in sessions ahead. The annual inflation rate, which accelerated to 8.5% in March, the highest since December 1981, is expected to ease to 8.1% in April.

The markets today

The British pound will be in focus today ahead of important economic reports scheduled for release on Thursday

Context: The GBP/USD forex pair traded slightly lower on Tuesday, after tumbling to its weakest level in around two years on Monday.

 Details: The Bank of England had raised its benchmark interest rate to 1.0% last week. UK’s central bank policymakers also warned that the economy could shrink by around 1% in the final quarter of 2022.

Markets expect the Bank of England to raise interest rates by another 110 basis points this year, which will take the benchmark rate to just above 2.0%.

Investors remained concerned about the global outlook with economic data released Tuesday indicating a further deterioration. UK’s retail sales in April contracted for the first time since January 2021, with rising cost of living impacting consumer spending. UK’s retail sales fell 0.3% in April. On a like-for-like basis, retail sales fell 1.7% year-over-year.

The GBP/USD forex pair by more than 0.1% to 1.2316 on Tuesday, after hitting its lowest level since June 2020 on Monday. The FTSE 100 closed higher by 0.37% at 7,243.22 on Tuesday, recovering slightly after a 2.3% plunge in the prior session.

 What to watch: With no major economic reports due to be released today, traders await data on GDP, industrial production and balance of trade on Thursday. The British economy is expected to grow 9% year-over-year in the first quarter, following 6.6% growth in the final quarter of 2021.

Market participants will also keep an eye on the ongoing war in Ukraine and surging covid-19 cases in some parts of the world.

 Other Markets: European trading indices closed higher on Tuesday, with the DAX 40, CAC 40 and STOXX Europe 600 up by 1.15%, 0.51% and 0.68%, respectively.

Support & resistances for today

Market snapshot

What else to watch today

Germany’s consumer prices, US MBA mortgage applications, gasoline inventories, crude oil inventories, distillate stockpiles, Cushing Crude oil stocks, heating oil stocks and government budget, Brazil’s inflation rate, Russia’s monetary policy report and foreign exchange reserves, Turkey’s treasury cash balance, as well as India’s central government budget value.