Gold trading outlook: futures remain high with support from Ukraine; US, EU data ahead

Gold futures recorded slightly lower price during early trading in Europe today. A major drop due to outlooks of an improving US economy, in addition to drops for the euro, was pared by the simmering conflict in Ukraine. Later today crucial economic data from the US and EU will be reported.

Gold futures for delivery in June traded for $1 305.8 per troy ounce at 8:18 GMT on the COMEX in New York today, falling by 0.01%. Daily high and low stood at $1 307.3 and $1 301.4 per troy ounce, respectively. Yesterday the precious metal added 0.86%, reaching a seven-day high of $1 309.2, as Ukraine supported. So far this week the contract has gained 1.42%, after losing 1.17% the previous week due to the recovering US economy.

Kiev began talks with political and civic leaders in an attempt to devise a way out of the crisis, which has dominated the geopolitical scene for the past months. However, separatist militia were not represented. Acting Ukrainian President Olexandr Turchynov said Kiev was prepared to listen to rebels, but they must lay down their arms first, the BBC reported.

The round table comes in light of Germany’s Foreign Minister Frank-Walter Steinmeier’s visit to Ukraine, and is part of the Organisation for Security and Co-operation and Europe’s (OSCE) “roadmap” out of the crisis. The organization said Russian President Vladimir Putin backed the presidential vote, which is taking place on May 25th.

However, Russian Foreign Minister Sergei Lavrov said Ukraine was as close to civil war as it can get, speaking for Bloomberg Television. He added that in the eastern regions there is already a “real war” between rebels and government forces, questioning the legitimacy of an election in wartime circumstances. Indeed, the conflict continues to rage on, as seven Ukrainian military personnel were killed in an ambush by rebels near the town of Kramatorsk in Donetsk region on Tuesday.

Donetsk and Luhansk regions declared independence, following the referendum on Sunday. Separatist leaders said all Ukrainian troops in the provinces will be regarded as “occupying” forces. The Kremlin said it expects the “will of the people be implemented,” though has yet to comment on the rebels’ requests for Moscow to incorporate the regions in the Russian Federation.

US economy

Yesterday a report on PPI in the US fomented positive sentiment for the economy. Producer prices in April grew by 0.6% on a monthly basis and 2.1% year on year, while Core PPI added 0.5% for the month and 1.9% for the 12 months ended April 2014.

The figure is a leading indicator for consumer inflation, which will be reported later today. CPI is expected to be at 0.3% on a monthly basis and 2.0% annually, after registering, respectively, 0.2% and 1.5% in March. Core CPI, which excludes the volatile food and energy costs, is forecast to have stand at 0.1% on a monthly basis for April, after 0.2% for March, while annually the growth in consumer prices would be at 1.7%.

Nearing the targeted 2.0% inflation, which indicates a healthy economy, boosts the dollar and attracts investments towards equities, which pressures gold on multiple levels.

Assets at the SPDR Gold Trust – the largest gold-backed exchange-traded fund, remained at the lowest level since January 2009 on Wednesday at 780.46 tons. The fund has lost 12 tons over the last two weeks. The diminishing holdings are a projection of lower interest in the precious metal, amid the strengthening economy.

In separate developments, the euro plummeted against the dollar, reaching 1.3660 EUR/USD by 8:16 GMT, which is a three-month low. The drop was induced by unimpressive GDP growth by major EU countries, ahead of the Blocs CPI report later today, which is projected to reveal consumer prices have not changed in April and remain at 0.7%. The low inflation hinders the Eurozones economic recovery, and last week ECB President Mario Draghi indicated measures will be taken if CPI remains low.

Technical view

According to Binary Tribune’s daily analysis, in case Gold June futures manage to breach the first resistance level at $1 312.9 on Monday, the contract will probably continue up to test $1 319.8. In case the second key resistance is broken, the precious metal will likely attempt to advance to $1 330.5.

If the contract manages to breach the first key support at $1 295.3, it will probably continue to slide and test $1 284.6. With this second key support broken, the movement to the downside may extend to $1 277.7.