Rising expectations of stimulus measures from China along with increasing bets of a pause in Fed rate hike bolstered market sentiments this week.
The dollar which was holding steady above 104 levels slipped sharply as an unexpected surge in US jobless claims eased bets of further monetary policy tightening. Also, US services sectors barely grew in May, as business activity and new orders slowed, while a measure of prices paid by businesses for inputs plunged to a three-year low. On the other hand, Euro rose to two weeks high of 1.0785 boosted by expectations that European Central Bank may raise rates by 25 bps next week, to be followed by another 25 bps increase in July, taking rates to 3.75 percent.
COMEX Gold ended the week with more than 5 percent gains as bets that the Federal Reserve is nearing the end of its hiking cycle led to pulling back in the dollar and US treasury yields, in turn benefitting non-yielding bullion. According to data from the PBoC, China raised its gold holdings for seventh consecutive month in May by about 16 tons, pushing total stockpiles to about 2,092 tons, highlighting strong demand for the precious metal from the world’s central banks.
Both Gold and Silver prices were under pressure earlier in the week owing to surprise rate hikes by the Reserve Bank of Australia and Bank of Canada. However, decline in the greenback prompted recovery in COMEX Silver from $23.32 per troy ounce to above $24.5 per troy ounce, while COMEX gold rebounded to $1980 per troy ounce from low of $1953.8 per troy ounce.
On the price action front silver has formed an inverse Head and Shoulder bullish pattern that might take prices beyond $25 per troy ounce. The reversal support of the pattern is near $23.20 per troy ounce, below which the pattern might negate.
Crude oil prices have remained steady this week as surprise 1 million barrel per day supply cut announced by Saudi was countered by demand concerns. Also, reports from Middle Eastern media that the US and Iran have made some progress on nuclear talks, added to concerns of more supply.
Base metals received some respite as softer inflation and disappointing trade figures from China added to evidence that the world’s second-largest economy cooled further in May, thereby sparking hopes that the People’s Bank of China might need to cut interests’ rate soon to support a sustained economic recovery. On the price action front copper has moved out of falling trend line indicating further bullishness in price. In case of NYMEX Crude oil price is expected to trade between $74 - $67 per barrel. Only a sustained break on either side might give a direction to price.
As of now, markets have largely priced in a pause for the upcoming June FOMC meeting. Additionally, worsening economic data prints from the US may limit scope for policy tightening in the coming months. Besides, prospects of more rate hikes by the ECB and Bank of England may keep dollar under pressure.
However, a recovery in greenback cannot be ruled out if the US CPI and retail sales post a surprise upside as it may lead to higher odds for rate hikes in the subsequent FOMC meetings. Crucial economic indicators from China will be cautiously awaited, any deterioration in activity in May will only add to calls from the industry to aid economic recovery.
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