Commodity Market: Gold surges to a fresh 91-month high as recent US data string dampens outlook

Gold prices registered a fresh 91-month peak on Monday, as market sentiment was still affected by bleak US macro data from last week, which highlighted to what extent the world’s largest economy had been impacted by the COVID-19 pandemic.

Friday’s data showed US retail sales had plummeted 16.4% in April from a month ago, or the sharpest rate of decrease on record, as Americans remained at home and a multitude of businesses were forced to shut down. At the same time, US industrial production shrank at a record monthly rate of 11.2% in April, while manufacturing output dropped at a record rate of 13.7%, dragged down by a 70% slump in production of motor vehicles and parts.

According to IG Markets analyst Kyle Rodda, recent data string suggested that economic recovery “is going to be a little slower than previously expected, and that’s probably going to require an environment of lower rates.” Lower interest rates make assets such as government bonds or equities less appealing to market players, luring them to invest in gold to safeguard their wealth.

At 9:29 GMT Spot Gold was gaining 1.01% to $1,760.20 per troy ounce, after touching an intraday high of $1,765.09, or a price level not seen since October 12th 2012 ($1,773.39). Meanwhile, Gold futures for delivery in June were gaining 0.74% on the day to trade at $1,769.35 per troy ounce, while Silver futures for delivery in July were up 3.53% to trade at $17.672 per troy ounce.

In an interview with CNBC, Federal Reserve Chairman Jerome Powell said he expected US economy to contract by up to 30% and unemployment numbers to approach levels not seen since 1930s. However, he also said there was “a good chance that there’ll be positive growth” during the third quarter. Powell expects that recovery may stretch well into 2021.

Market players will be looking for further clues on macroeconomic outlook during Jerome Powell’s testimony on Coronavirus Aid, Relief, and Economic Security Act before the Senate Banking, Housing, and Urban Affairs Committee on Tuesday.

Meanwhile, near-term interest rate expectations were almost unchanged. According to CME’s FedWatch Tool, as of May 18th, 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% probability a week ago.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – $1,741.06
R1 – $1,753.28
R2 – $1,763.93
R3 – $1,776.15
R4 – $1,788.37

S1 – $1,730.41
S2 – $1,718.19
S3 – $1,707.54
S4 – $1,696.88

Gold is still in bullish configuration, with immediate resistance seen at today’s high ($1,765.09) and then, at the high from October 12th 2012 ($1,773.39). Support may be expected at the 20-period EMA ($1,754.30) and then, at the low from May 15th ($1,728.85).