Gold Attempts to Find Support at $1200

Gold Attempts to Find Support at $1200

31 May 2016, 14:27
Roberto Jacobs
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Gold Attempts to Find Support at $1200

After suffering nine days of consecutive losses and falling to a threemonth low, marginally below $1200 during trading on Monday, Gold is now attempting to consolidate and stabilize around $1200. The month of May has overall been a painful one for Gold, with the yellow metal suffering losses of around $100 as a result of the sudden reversal of US interest rate expectations, with the markets now pricing in a possibility that US interest rates could be raised once again over the summer months.

When you consider that the expectations for a US interest rate rise in June was zero percent just a few weeks ago and the markets were generally just expecting one US interest rate rise at the conclusion of 2016, this has been a remarkable turnaround and resulted in USD strength throughout the currency markets. Gold reached a milestone high above $1300 at the beginning of May as a result of US interest rate expectations being around zero at that point, meaning the emergence in optimism over the possibility of a move by the Federal Reserve over the summer has heavily weakened Gold.

The recent aggressive round of selling momentum for Gold is likely to meet a conclusion and the price should now consolidate in anticipation of the US NFP report on Friday. Technically speaking, Gold now needs to conclude trading below the $1190$ 1200 zone for the floor to be unleashed for another heavy round of selling. For this to occur we likely need further clarification that the Federal Reserve could actually raise US interest rates over the upcoming quarter, meaning further indications of the US economy picking up momentum are required.

Could Yuan weakness be set to resume?

As we conclude trading later this evening for the month of May, the USDCNY is set to record its second monthly gain. Volatility in the Chinese currency has generally stabilized over the previous couple of months and the RMB weakness has showed a far more gradual path to what we experienced as 2016 commenced, however as we enter the second half of 2016 the question has to be asked over whether weakness in the Chinese currency is set to resume.

One of the reasons that could lead to a resumption of weakness for the Chinese currency is because economic data from China is likely to soon begin concerning observers, in particular that GDP growth might be at threat to falling below the government target for 2016 and this could tempt policymakers into weakening their currency. The strongest threat to CNY weakness however is that the Federal Reserve appears to be preparing the markets for a US interest rate rise over the summer, and this is going to be a threat to capital outflows across all of the emerging markets.

GBPUSD suffers from profittaking

The GBPUSD has declined heavily during trading on Tuesday, with the British Pound weakening from around 1.4723 to 1.4567 against the Dollar. With less than one month remaining to the historic EU referendum, it is expected that the British Pound is going to continue facing heightened levels of sensitivity. While another report has been released domestically around UK companies becoming gloomier about the economic outlook as the EU referendum approaches, I think investors are generally taking profit on the GBPUSD because there are very few expectations out there that the GBPUSD can move back above 1.50.

One of the reasons to believe that the GBPUSD will continue to find gains capped below 1.50 is not only because of the upcoming EU referendum taking place, but also because Dollar demand is going to remain stable as long as optimism remains that US interest rates will be raised higher during 2016. Economic momentum is slowing down for the UK economy and the risks for the currency are still pointing towards weakness, with this being in spite of the possible repercussions if the United Kingdom votes to leave the EU on June 23.


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