Gold trading outlook: futures lose ahead of US retail sales data, Ukraine support

Gold futures traded lower during early hours in Europe today, keeping to the recent downtrend, induced by the recovering US economy. Later today a report on retail sales, a major indicator, is expected to reveal further growth in the US. Ukraine is also on the traders horizon, after the independence referendum on Sunday added to risk-off mentality.

Gold futures for delivery in June traded for $1 292.1 per troy ounce at 8:38 GMT on the COMEX in New York today, dropping 0.29%. Daily high and low stood at $1 298.8 and $1 290.2 per troy ounce, respectively. Yesterday the contract added 0.64% on tensions in Ukraine, after recording a 1.17% loss last week due to the recovering US economy.

Expectations of positive data from US economic reports this week apply continuous pressure on precious metals. Later today retail sales for April will be reported. Sales are forecast to have increased by 0.4% for the month, down from an upward-revised 1.2% growth for March, while core retail sales are expected to show a 0.6% growth after 0.7% the previous month. Sales are a major indicator for the health of the world’s top economy, where 70% of the GDP is generated through consumer spending.

On Thursday consumer inflation for April will be reported. CPI is expected to have 0.3% on a monthly basis and 2.0% annually, after logging, respectively, 0.2% and 1.5% in March. Core CPI, which excludes the volatile food and energy costs, is forecast to have added 0.1% on a monthly basis for April, after 0.2% for March, while annually the growth would be at 1.7%.

The positive outlooks for the economy attract investments away from safe-haven and towards the higher risk-reward of equities, such as stocks. Indeed, US stocks asserted confidence in the worlds top economy yesterday, with all three major indices closing higher. Dow Jones Industrial Index added 0.68%, S&P 500 gained 0.97% and Nasdaq 100 increased by 1.60%.

Additionally, the improved investment outlook boosts demand for the dollar, which also increases the price of dollar-denominated goods, such as gold. The US dollar Index remained at near month-high levels yesterday, closing at 79.95. The greenback traded the highest in a month against the euro, closing at 1.3756 EUR/USD , and against the yen, closing for 102.19 USD/JPY.

“The strength of the dollar is offsetting any escalation of the situation in Ukraine,” said for Bloomberg Xia Yingying, analyst at Nanhua Futures Co. “Investors will continue to watch for any progress in Ukraine, as well as keep an eye on U.S. economic data for direction.”

Assets at the SPDR Gold Trust – the largest gold-backed exchange-traded fund, reached the lowest level since January 2009 on Monday, declining to 780.46. 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 US economy.

Previously, a number of reports added to positive outlooks for the US economy last week. Figures on employment and the services sector scored better than expected. Earlier, the Fed confirmed it will continue supporting the economy nonetheless.

Ukraine

Fears over a Russian intervention in Ukraine kept a floor under prices, as the eastern Ukrainian regions of Donetsk and Luhansk announced a sound victory in the independence vote on Sunday. Moscow said it wishes to see the “will of the people be implemented,” however it has not commented on the vote organizers’ remarks, who called for Russia to annex the regions, much like it did with Crimea earlier this year. Rebel leaders said they will hold a vote on joining the Russian Federation, the BBC reported.

The West and Ukraine have widely condemned the referendum, dismissing its legitimacy. The EU expanded the list of sanctioned individuals and companies by 15 names yesterday, including 2 Crimean energy firms and close allies of Russian President Vladimir Putin.

Ukraine is to hold much-awaited presidential elections on May 25th, which are expected to bring stability and reinstate legitimacy of the authorities. Last week Mr Putin signaled a turn in Kremlin’s course, after backing the vote, calling it a “step in the right direction.” However, Moscow has done little to visibly support the election, and pro-Russian rebels say they will boycott the vote.

Technical view

According to Binary Tribune’s daily analysis, in case Gold June futures manage to breach the first resistance level at $1 307.6 on Monday, the contract will probably continue up to test $1 319.5. In case the second key resistance is broken, the precious metal will likely attempt to advance to $1 334.4.

If the contract manages to breach the first key support at $1 280.8, it will probably continue to slide and test $1 265.9. With this second key support broken, the movement to the downside may extend to $1 254.0.