Commodity Market: Gold retreats from 1 1/2-week highs on recovery optimism, but losses seen limited

Gold prices retreated from Monday’s 1 1/2-week highs during European trade on Tuesday, as optimism over gradual economic recovery seemed to have weighed on safe haven demand. However, concerns over strained relations between Beijing and Washington as well as riots in major US cities kept Gold’s intraday loss limited.

“It appears that there are factors both supporting, and limiting appreciation in the gold price,” National Australia Bank economist John Sharma said.

Hong Kong’s special status is likely to be revoked by the United States, while in response Beijing may limit purchases of US-made goods, placing the trade deal between the two countries in jeopardy and supporting risk-off sentiment, according to Sharma. At the same time, relaxation of lockdown restrictions is spurring investor optimism and limiting safe haven asset gains.

Monday’s data showed US manufacturing activity contracted at a less steep rate in May, with the ISM Manufacturing PMI rising to 43.1 from April’s 11-year low of 41.5. Contraction in the sector turned out to be less severe last month in the UK and the Euro area as well, while China’s manufacturing industry activity unexpectedly rose, as the Caixin Manufacturing PMI surged to a reading of 50.7 from 49.4 in April.

Meanwhile, concerns that the COVID-19 disease may re-emerge as a result of the continuing violent protests across the US capped Gold losses. A strip mall in Los Angeles was set ablaze, stores in New York City were looted, while 4 police officers in St Louis took gunfire on Monday during clashes with protesters. US President Donald Trump condemned the killing of George Floyd, 46-year old African-American, during a police arrest outside a shop in Minneapolis on May 25th and also addressed the spreading violence.

“Mayors and governors must establish an overwhelming law enforcement presence until the violence has been quelled,” he said. “If a city or state refuses to take the actions that are necessary to defend the life and property of their residents, then I will deploy the United States military and quickly solve the problem for them.”

As of 9:13 GMT on Tuesday Spot Gold was inching up 0.02% to trade at $1,740.20 per troy ounce, after touching an intraday high of $1,743.39 during early Asian trade, or a price level not far from Monday’s 1 1/2-week high. Meanwhile, Gold futures for delivery in August were up 0.01% on the day to trade at $1,750.40 per troy ounce, while Silver futures for delivery in July were down 0.06% to trade at $18.815 per troy ounce.

The US Dollar Index, which reflects the relative strength of the greenback against a basket of six other major currencies, was inching up 0.05% on Tuesday to 97.87, after touching an intraday low at 97.74, or a level not seen since March 16th (97.45).

No relevant macro data, which could impact Gold, will be released on Tuesday.

Meanwhile, near-term interest rate expectations were little changed. According to CME’s FedWatch Tool, as of June 2nd, investors saw a 97.9% chance of the Federal Reserve keeping borrowing costs at the current 0%-0.25% level at its policy meeting on June 9th-10th, compared with a 97.1% probability a day ago.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – $1,737.36
R1 – $1,747.26
R2 – $1,754.59
R3 – $1,764.49
R4 – $1,774.39

S1 – $1,730.02
S2 – $1,720.13
S3 – $1,712.79
S4 – $1,705.46