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Gold expected to close week on a quiet, slightly weaker note

A weekly market summary for gold, May 18-22

COMEX gold futures started the week on a firm note during Asian trading on Monday, on bullish carry-over support from the previous week, and the Comex June Gold GC contract touched a high of US$1,775.8.

Gold prices rallied on remarks from central bankers over the weekend. Late Sunday, US Federal Reserve chairman Jerome Powell outlined the likely need for three to six more months of government financial help for firms and families. Reports that the US is moving to block shipments of semiconductors to China's Huawei Technologies from global chip-makers also boosted gold.

Prices, however, fell back when risk appetite returned to global markets on news of positive test results from the experimental drug designed to fight the Covid-19 virus. Moderna, an American biotechnology company, said its initial tests showed that it has successfully created an immune-system response that protects against the coronavirus.

Comex gold futures recovered some ground the following day, after the effectiveness of the vaccine was downplayed. The weaker US dollar and agreement over European stimulus measures also helped. Fed officials have also downplayed the US recovery from lockdowns.

The US dollar strengthened towards the weekend and put pressure on gold prices, as US-China tensions simmered after US President Donald Trump renewed his criticisms of China's leadership over the handling of the coronavirus pandemic.

Global manufacturing data was generally stronger than expected, which prompted some long liquidation in gold. The euro zone May Markit manufacturing purchasing managers' index (PMI) rose 6.1 points to 39.5. The UK May Markit manufacturing PMI rose 8.0 to 40.6, and the US May Markit manufacturing PMI rose 3.7 to 39.8.

Unemployment data from the US showed that nearly 2.5 million more Americans filed for first-time unemployment claims last week, bringing the total number of US job losses from Covid-19 to around 39 million. However, the figure was lower than those filed the previous week, suggesting that the job-losses curve is flattening.

While cities are slowly opening up, there remain fears of a possible second wave of the virus, as has been experienced in northern Chinese cities and Korea. This reinforces expectations of a prolonged period of economic weakness that will require state support.

Technical analysis for Comex June gold futures (GCM20)

Technical indicators on the daily charts are showing trajectories which are positive. The 14-day RSI is further above the 50 level. The MACD (moving average convergence divergence) index has generated a crossover buy signal, but its upward sloping trajectory does not have a sharp slope.

The GC June contract had last week finally broken out after having been wedged between a symmetrical triangle, with an upward sloping trend line support from April 21 and a downward trending resistance line from April 23. The next hurdle would be at US$1,776 and then US$1,800. The next immediate support lies at US$1,683 and the low at US$1,666.2.

  • The writer is senior manager for commodities at Phillip Futures

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