Commodity Market: Gold off 1-week lows as US-China tensions underpin safe haven demand

Having touched a one-week low yesterday, Gold gained some ground on Friday, as escalating tensions between Beijing and Washington heightened the appeal of safe haven assets.

US President Trump warned of a “very strong” US reaction to new Chinese national security legislation on Hong Kong, which is seen as an attempt to increase China’s control over the former British colony and might once again trigger pro-democracy protests.

A week ago, the Trump administration also moved to cut Chinese telecoms equipment company Huawei Technologies off international chip suppliers, while the Senate on Wednesday passed legislation that could not allow particular Chinese firms to list their shares on exchanges in the United States.

“The fundamentals are still supportive for gold. But, there was a slight improvement in the manufacturing activity in Europe and the U.S., the PMI data last night was slightly better,” Avtar Sandu, a senior commodities manager at Phillip Futures, said.

Preliminary data by IHS Markit showed on Thursday that manufacturing activity in the Euro area shrank at a lesser rate than expected in May, but it still was the second-steepest contraction on record. Activity in the Eurozone’s services sector also contracted at a lesser rate than anticipated in May, the report showed, but it still was the third-steepest contraction in the sector since the survey was initiated in June 1997. These data points, along with some other positive macro data, seemed to have been insufficient to support risk-on mood and market sentiment remained dominated by US-China frictions.

At 9:32 GMT today Spot Gold was gaining 0.37% to trade at $1,733.49 per troy ounce, after touching an intraday high of $1,740.23. Meanwhile, Gold futures for delivery in June were gaining 0.75% on the day to trade at $1,734.75 per troy ounce, while Silver futures for delivery in July were up 0.47% to trade at $17.445 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 0.39% on Friday to 99.81, after climbing as high as 99.83, or a level not seen since May 18th (100.47).

Meanwhile, near-term interest rate expectations were little changed. According to CME’s FedWatch Tool, as of May 22nd, 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 100.0% probability a day ago.

With no relevant macro data or other events scheduled today, gold traders will likely pay attention to the accounts from the European Central Bank’s latest policy meeting, held on April 30th. The document will be released at 11:30 GMT.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – $1,731.27
R1 – $1,744.96
R2 – $1,762.76
R3 – $1,776.46
R4 – $1,790.16

S1 – $1,713.47
S2 – $1,699.77
S3 – $1,681.98
S4 – $1,664.18

Gold may encounter resistance in the area around the R1 pivot level/May 21st high ($1,744.96-$1,749.06) and then, at the high from May 20th ($1,754.05). Support may be expected at the 20-period EMA ($1,731.86) and then, in the area around May 21st low/today’s low, $1,717.57-$1,724.51.