Gold trading outlook: futures mark slight gains; bearish data from the US and China

Gold traded slightly higher in European trading on Wednesday, though the metal seemed steady on its downward way after it recorded the lowest price in 12 weeks yesterday as investors judged the US recovery a stronger bet than escalation of the Ukraine crisis. Also boosting bearish sentiment, speculations with the Yuan weighed on Chinese demand, as the weaker domestic currency increases the cost of the dollar-denominated precious metal.

Gold futures for settlement in June on the COMEX division of the New York Mercantile Exchange traded for $1285.1 per troy ounce at 7:54 GMT, gaining 0.31% on yesterday’s close, with daily high and low at $1287.5 and $1282.1 per ounce, respectively. Yesterday prices dropped to $1275.8 – the lowest since February, testing the support, but despite its rebound the precious metal has recorded a total loss of 1.73% for the last three sessions.

The US is reporting very solid data as of recently, indicating a strong economic recovery, boosting the dollar, which in turn lessens the appeal of gold as an alternative investment. Later today a report is expected to reveal a higher-than-expected manufacturing growth in the world’s largest economy, reading April’s PMI at 56, up from March’s figure of 55.5. Yesterday reports showed existing home sales beat expectations to reach 4.59 million annual sales, in addition to improving on a monthly basis from a 0.4% fall to a 0.2% decline.

Last week saw major factors for measuring the US economy mark significant improvements, as all retail sales, consumer inflation, industrial output scored better than expected. Big gains for the American currency, however, were capped by Fed Chairwoman Janet Yellen’s announcement of continuing support for the US economy. ”Persistently low inflation poses a more immediate threat to the U.S. economy than rising prices,” she said, aligning Fed’s policy with inflation and employment rates targets, and signifying that interest rates will stay near zero for some time to come.

In Shanghai volumes for spot gold climbed yesterday to near a five-week high, though analysts say physical demand should have been higher: “The market is bearish right now because there are no physical buyers even at the sub-$1,300 level. Selling by exchange-traded funds is also a negative,” said for Reuters Standard Bank branch manager for Tokyo Yuichi Ikemizu.

Analysts attribute a lower demand in China – the world’s foremost gold consumer, with the weaker Yuan, as it increases the cost of the dollar-denominated metal; the Chinese currency reported the lowest level against the dollar in 14 months on Tuesday. Also spanning negative sentiment, a report last week indicated as much as 1000 tons of gold may be tied-up in financial deals, rather than to meet demand.

The crisis in Ukraine remains the strongest support for gold prices, as yesterday Ukraines interim president reported two men – one of which was from his political party, were found dead with signs of brutal torture. He also urged for the resumption of the military crackdown on pro-Russian separatists in the East. Meanwhile the US threatened Russia with more sanctions, after the evident failure of the peace measures, agreed-upon in Geneva last week, boosting bullish sentiment.

Assets in the SPDR Gold Trust, however, remained at their lowest-since-January levels at 792.14 tons, indicating sluggish demand for the yellow metal, in line with the recent down-trend.

Technical view

According to Binary Tribune’s daily analysis, in case Gold June futures manage to breach the first resistance level at $1 290.87, the contract will probably continue up to test $1 300.63. In case the second key resistance is broken, the precious metal will likely attempt to advance to $1 308.17.

If the contract manages to breach the first key support at $1 273.57, it will probably continue to slide and test $1 266.03. With this second key support broken, the movement to the downside may extend to $1 256.27.