International spot gold rebounded modestly in early Asian trading on Friday and is now trading at $1,728.90 an ounce. Overnight gold prices suddenly accelerated sharply, hitting as low as $1,717.00 an ounce.
In the previous session, international spot gold sub-market opened at $1746.40 / oz in the morning, rising as high as $1750.39 / oz, and fell as low as $1716.44 / oz to close at $1726.20 / oz, down $20.77 or 1.19%.
COMEX June gold futures, meanwhile, closed down $30.20, or 1.7 percent, at $1,721.90 an ounce, the lowest close since May 13.
Gold fell more than 1 percent in the previous session as investors took profits after the recent rally and some stayed on the sidelines amid rising trade tensions with the United States and doubts about the economic recovery.
“The stock market is so overbought, there’s so much money going into the tech sector, so once you start to get out of your position, there’s going to be some panic trading in the market,” said Phil Streble, chief market strategist at Blue Line Futures in Chicago. “gold is going to come under some pressure as people look to liquidate their assets. But that won’t hurt gold too much. It’s just gone down a little bit, that’s all.
Wall Street’s fear index briefly rose to 30 as sentiment soured amid rising trade tensions between China and the United States and concerns about the speed of recovery from a novel coronavirus economic downturn.
Gold has sometimes tracked stocks this year, especially if sharp selling has prompted investors to sell the metal in exchange for cash or to pay for margin calls in other markets. Gold prices have also been pressured by the strength of the us dollar, which has been another safe haven asset amid rising trade tensions between China and the us.
In the United States, a series of economic data released the economic outlook is still not optimistic
Initial claims for state unemployment benefits fell to 2.438 million in the week ended May 16, the seventh straight weekly decline, but slightly above expectations of 2.4 million. Separately, sales of previously owned U.S. homes plunged 17.8 percent in April from a month earlier, while sales fell by the most since July 2010.
As the tail effects of the coronavirus outbreak continued to affect the U.S. job market, initial claims for U.S. jobless benefits reached 2.438 million last week from an expected 2.4 million. The previous figure was revised to 2.687 million from 2.981 million.
The seasonally adjusted total, while still far higher than any figure in the United States before the coronavirus outbreak, was the seventh straight week of declines, hitting a record high of 6.9 million at the end of march.
The data also showed the number of americans continuing to file for state unemployment benefits rose to a record high of 2.573 million in the week ended May 9, compared with an expected 24.765,000, up from 22.548 million.
About 38.6 million workers have filed for unemployment benefits in the nine weeks since the coronavirus lockdown shut down much of the U.S. economy.
Meanwhile, the economic impact of the coronavirus has hit the housing market hard.
Sales of existing homes fell 17.8 per cent month-on-month and 17.2 per cent from April 2019 on a seasonally adjusted basis, according to the national association of realtors. That translates to an annualized sales rate of 4.33 million units, the lowest since September 2011.
April saw the biggest monthly drop in home sales since July 2010.
In addition, two other data released on the same day were slightly better than expected, but still far below the line of expansion and contraction: the preliminary Markit manufacturing PMI for may was 39.8, expected to be 39.5, and the previous value was 36.1. The preliminary Markit services PMI for may came in at 36.9 from 32.3, up from 26.7.
Markit chief economist William Williamson said business activity fell sharply in May, following a record decline in April, adding to evidence that second-quarter GDP will fall at an unprecedented rate. Encourageingly, the survey showed that the rate of economic collapse appeared to have peaked in April.
If the U.S. economic data continues to deteriorate significantly, then the market fear further spread, when gold bulls may launch a bigger offensive.
Trump backs out again! Announced plans to withdraw from the open skies treaty
The trump administration said on Thursday that it would withdraw from another major international treaty. The decision is expected to rattle European Allies as the United States further withdraws from its global arms commitments and other agreements.
The open skies treaty allows 35 countries, including Russia, to conduct unarmed surveillance flights over each other’s territory to ensure they are not prepared to take military action.
The trump administration has previously said that Russia has repeatedly violated the terms of the agreement. The agreement was reached 30 years ago. The administration insists Russia is using the flights as an opportunity to identify critical infrastructure it can target in a potential conflict.
“President trump has made clear that the United States will no longer be a party to international agreements that are being violated by others and no longer serve our interests,” national security adviser Robert O ‘brien said in an emailed statement.
“We look forward to negotiating with Russia and China on a new arms control framework that will go beyond the cold war framework of the past and contribute to the security of the entire world,” the statement added.
Secretary of state Mike Pompeo wrote in a statement that the United States might reconsider its withdrawal if Russia returned to full compliance with the treaty.
Pompeo added: “unfortunately, this is not just an open skies treaty issue, because Russia has consistently violated many of its arms control obligations and commitments.”
In a statement following the us announcement, Russia’s permanent mission to NATO wrote that the open skies treaty was “essential to ensure mutual trust in Europe and beyond”.
“If that happens, it would be very regrettable. “Unfortunately, this is consistent with the overall policy of the current U.S. administration and undermines all arms control agreements.”
Under the terms of the treaty, formal withdrawal will take place within six months.
The latest news could herald the withdrawal of the United States from its only major arms treaty with Russia. The new start treaty limits the number of nuclear missiles in the U.S. and Russian arsenals to 1,550. The agreement expires a few weeks after the next President takes office. The President has until February 2021 to extend the agreement for up to five years.
The withdrawal from the open skies treaty is the latest withdrawal by the trump administration. Last year, Mr Trump withdrew the us from the intermediate-range nuclear forces treaty, raising fears of a burgeoning arms race between the world’s two largest nuclear powers.
If geopolitical events continue to unfold, risks will rise and risk aversion will rise, leading to a fresh burst of gold buying.
Golden aftermarket outlook
Credit Suisse continues to expect gold to eventually breakthrough a new high above $1,921 before hitting resistance at $2,000 and $2075/80. The $1,660 support level needs to be held to keep expectations for further gains. Gold has completed a small bullish “triangle” pattern above $1,747. Despite concerns about momentum and positioning, the bullish trend is expected to continue, with the next resistance test at $1796/1,803 / oz, which would mark the beginning of a new consolidation phase.
Traditionally, gold prices have risen seasonally from the beginning of the year, stayed flat through the spring, and usually hit lows in the late summer and early fall, noted author Mickey Fulp said in an interview. From June through the end of October, gold is expected to be flat or gradually losing value, with a low around mid-august. Typically, gold’s seasonal low for the year is sometime between July 1 and August.
Mickey Fulp also pointed out that in the long run, the unprecedented stimulus measures taken by central Banks and governments to support the global economy, which has been severely damaged by the epidemic, could be enough to reverse the traditional pattern of gold. Investors should view any pullback as a buying opportunity, with gold and silver prices expected to continue rising for the rest of the year.
Writing for Economies.com, gold showed more signs of negative trading, hitting the $1,725.90 level, suggesting the completion of the double-top pattern and a bigger decline in coming days. It should be noted that a close below that level on the daily line would push prices all the way down to $1,691.10.
“The FOMC minutes reinforce the committee’s view that the slow economic recovery could also trigger deflation, which is negative for gold,” Stephen Innes, global chief market strategist at AxiCorp, wrote in a daily research note.
Analysts at Zaner Metals said: “the dollar has rebounded from rising us-china trade tensions. In addition to the trade-influenced dollar rebound, we see the threat of trade conflict. The fed promised more support at its April meeting but failed to deliver, which may have disappointed precious metals traders.”
“Gold seems to have lost some momentum after jumping above $1,750,” said Craig Erlam, analyst at OANDA. However, the magnitude of the monetary stimulus in the financial system, the need for a sustained period of stimulus, and the risk of inflation are all positive for gold in the long run.”
Kitco analyst Jim Wyckoff said profit-taking by some short-term futures traders was the focus today. The rebound in the dollar index is also a negative factor for metals markets. Once again, the two metals appeared to follow us stock indices lower at midday.
“Gold remains locked in the $40 range ($1,760 – $1,720) and there should continue to be strong interest in lower levels in the near term,” MKS PAMP said in a note.