Gold Jump starts June

Weak manufacturing data from China has increased concerns on the world’s fastest growing economy. Investor sentiments weakened further and led to downside pressure on Asian equities in today’s trading session. US equities also ended lower in yesterday’s trade on the back of poor economic data that suggested the US economy was still on a slow growth trajectory amid the heightening European economic crisis.

The US Dollar Index (DX) has strengthened 5.5 percent in the month of May and this strength in the currency is not due to an improving US economic scenario, but is a result of weakness in the Euro due to the unresolved debt crisis. In yesterday’s trade, the currency closed in the green as weak equities coupled with low risk appetite supported demand for the low-yielding dollar.

The fall in the Euro continued on Thursday but the currency recovered from its lows on reports that the International Monetary Fund (IMF) is in process to think of measures or a bailout package for Spain.

As expected this week, gold futures were really well contained by the stiff range we mentioned, from $1520-1600 so far although massive volatility was there within the defined range. Today morning the weakness is again felt at the Globex dogged by a fresh Spanish discomfort and that raised the call for external aid to settle a ruined financial condition. The Euro has condensed to a sharp sell-off by the record widened yield spread between Spanish-German bonds. The Euro therefore exhibits further potential downside and may take gold along the ride. Asian equities sank followed from the bleak US releases and the disappointed Chinese manufacturing release in early morning. Market would have been waiting for the mostly eyed nonfarm payroll data due later today. After the indication from ADP yesterday, the lackluster growth in jobs is expected in private sector as well. Any disappointment in today’s report may further damp the market sentiment but it could be a supportive factor for gold to draw refuge from the slumping economic sentiment. However, personal income may increase as the unit labor cost rose while spending may drop as the closely followed index of consumer confidence fell for the third straight month in May to the lowest level in five months.

Overall, the US releases seem to be blend which might create bit volatility in today’s session. But before that, as we discussed, gold may ride along the wobbled Euro. Hence, the Asian and European hours may see gold trading at a lower note; while in the evening a slight weakness in nonfarm may fuel the metal’s price as a haven. Said above, we recommend staying short for the metal till the US starts after which we need to be cautious for the data release.

Silver futures prices are also trading down be almost half a percent at the Globex. The Asian equities sank, taking cues from the US shares and a bleak picture drawn by the economic releases yesterday. Also, the early morning manufacturing release from China also created pressure on the equities. The Euro again came down as the record widened yield spread between Spanish-German bonds created sharp sell offs in the shared currency. We therefore expect silver too to remain weak for the day. However, US nonfarm payroll has to be watched keenly. Especially after the ADP data disappointed yesterday, we may be conservative in our estimation for job addition. Even if there is some addition, it would not be huge enough. So, this may be a fuelling factor for silver price in today’s session.

 

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