Commodity Market: Gold retreats as investors trim safe haven bets, downside seen limited

Gold retreated from yesterday’s highs on Thursday, as optimism over a timely economic recovery from the coronavirus crisis prompted market players to trim their safe haven bets.

“There is still some optimism and risk-on sentiment about the possibility of a vaccine and talks of lockdown easing and growth slowly picking up,” National Australia Bank economist John Sharma said. “But it is not a huge thing and if it was major, we would see gold going below $1,700.”

Still, the downside for gold may be limited by a combination of factors such as somber macro data, friction between Beijing and Washington and prospects of additional monetary and fiscal stimulus.

The Minutes from the FOMC’s most recent policy meeting showed that borrowing costs might be left close to zero until a firm recovery was observed. The Fed once again underscored its commitment to use the entire range of policy tools in support of the economy. Fed policy makers also highlighted that a second coronavirus wave leading to another round of restrictive measures could deepen recessionary processes and heighten the need for additional stimulus.

At 9:32 GMT today Spot Gold was losing 0.80% to trade at $1,734.14 per troy ounce, after touching an intraday low of $1,731.43, or a price level not seen since May 19th ($1,726.62). Meanwhile, Gold futures for delivery in June were losing 0.96% on the day to trade at $1,735.30 per troy ounce, while Silver futures for delivery in July were down 1.93% to trade at $17.683 per troy ounce.

The US Dollar Index, which reflects the relative strength of the greenback against a basket of six other major currencies, was gaining 0.14% on Thursday to 99.30, rebounding from yesterday’s 2 1/2-week low of 99.00.

In terms of economic calendar, today gold traders will be paying close attention to a vast string of macro data coming from the United States, including the weekly report on initial jobless claims and the monthly report on manufacturing activity in Philadelphia at 12:30 GMT as well as the monthly data on existing home sales at 14:00 GMT.

Additionally, there is plenty of Fed speak on today’s calendar. New York Fed President John Williams will speak in a webinar discussion at 14:00 GMT, followed by a statement by Fed Vice Chair Richard Clarida during an online discussion hosted by the New York Association for Business Economics at 17:00 GMT. And at 18:30 GMT Federal Reserve Chair Jerome Powell will give opening remarks at Fed Listens: How is COVID-19 Affecting Your Community? event, via a webcast.

Meanwhile, near-term interest rate expectations were little changed. According to CME’s FedWatch Tool, as of May 21st, investors saw a 99.3% chance of the Federal Reserve keeping borrowing costs at the current 0%-0.25% level at its policy meeting in June, compared with a 98.6% probability a day ago.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – $1,748.12
R1 – $1,754.03
R2 – $1,759.96
R3 – $1,765.88
R4 – $1,771.79

S1 – $1,742.19
S2 – $1,736.28
S3 – $1,730.35
S4 – $1,724.42

The yellow metal may remain supported at today’s low of $1,731.43 and then, at the low from May 19th ($1,726.62). A break below it may expose the low from May 14th ($1,711.27). Resistance may be expected at the 20-period EMA ($1,742.00) and then, at the high from May 20th/R1 pivot level ($1,754.05).