Gold Sputters at 1,900 as Fed Taper Talks Gain Steam, Silver Follows

Gold pulls back as Fed’s Brainard hints at possible upcoming taper talks Silver follows gold as markets shift focus to May’s US Non-farm Payrolls Copper looks to find support after breaking above triangle resistance

Gold prices fell back below the 1,900 level after the yellow metal’s strength cooled on better-than-expected US ISM manufacturing data on Wednesday morning. According to the DailyFX Economic Calendar, the May PMI data from ISM hit 61.2, beating the consensus forecast of 60.9. The upbeat economic data fueled Fed taper talk speculation, which has been an ongoing speculative debate among market participants.
Lael Brainard, Federal Reserve Board of Governors member, spoke from the Economic Club of New York on Tuesday when she supported the ongoing super-lose monetary policy in place. However, Ms. Brainard made a shift in her language this week – replacing “patient” to “steady” when referring to the Fed’s course of action — perhaps a sign that she may now be more perceptive to a rollback in the Fed’s balance sheet.
XAU/USD’s technical position appears fragile despite pushing into fresh multi-month highs. The psychologically imposing 1,900 level appears to be a point of contention for the yellow metal. The quick surrender back below 1,900 suggests fading upward momentum. Still, the pullback is rather modest, and a bullish SMA crossover between the 50- and 100-day Simple Moving Averages may indicate possible upside. The Relative Strength Index (RSI) and MACD both indicate a deeper pullback may be on the cards, however.


Elsewhere, silver also saw a pullback versus the US Dollar, with XAG/USD moving below the 28 handle. The precious metal remains near multi-month highs despite the modest pullback to start the month. Since the March low, prices have climbed over 17%, helped by a weakening US Dollar. As with gold prices, silver retreated modestly following the ISM manufacturing print, which boosted bets for balance sheet tapering.
XAG/USD’s technical position improved dramatically through April and May trading, gaining 6.14% and 8.21%, respectively. The August 2020 multi-year high at 28.11 appears to be imposing significant resistance on the precious metal. Clearing that level is key to break into higher ground. Support from an upward channel stemming from the March swing low may help foster that push, but a break below support may drop price to the rising 50- or 100-day SMA.


Copper is coming off two months of bullish action, breaking 11.83% and 4.69% higher, respectively. Like gold and silver, the US Dollar’s decline helped advance the industrial metal. Actions out of China to cull speculation in the high-flying metals market have had limited success outside of a few road bumps in price action. The global economic reopening has proved to be the main price driver as demand continues to accelerate while pandemic-induced supply bottlenecks are ironed out.
Copper has pushed above a Descending Triangle’s downward trendline, but so far, price has failed to see significant upside movement. The price appears to be moving lower, which could see the prior resistance level step in as support. If so, it may inject confidence for traders to take price higher. If a move lower forms, however, the rising 50-day SMA could step in to provide support as it has earlier this year. The 4.88 level is the upside target before breaking into fresh highs.


AUD/USD Analysis: Australian Dollar Points Higher Following Strong Q1 GDP Data

RBAustralian Q1 GDP grows by 1.1% YoY, vs. expectations of 0.6%, previous reading of -1.1%
AUD/USD consolidates between 0.7700 and 0.7800, next big move may come around June FOMC meeting Reserve Bank of Australia maintained the cash rate at 0.1%, prolonging period of “easy monetary policy”

Australian GDP growth for Q1 surpassed expectations, coming in at 1.1% YoY vs. an expected print of 0.6%. Quarter over quarter growth also beat estimates, coming in at 1.8%. The strong print is sure to reignite Australian Dollar bulls to push back toward the yearly high of 0.8007. There were some concerns that the Australian recovery may have been slowing as the Reserve Bank of Australia (RBA) failed to make any changes to its policy slate during its June 1 meeting. The strong print, coupled recent USD weakness, may be enough to push AUD/USD higher towards 0.7800.
The Reserve Bank of Australia made no changes to its policy stance during its June 1 meeting, despite widespread rumors that the RBA may follow the Bank of Canada and Reserve Bank of New Zealand and strike a more hawkish tone. The RBA remained dovish, maintaining the cash rate at 0.1%, citing a need for employment and inflation metrics to meet longstanding targets. RBA Governor Philip Lowe reminded the public that there is a large amount of uncertainty still surrounding the country regarding potential outbreaks of new COVID variants.
The Australian Dollar has consolidated of late, effectively trading between 0.7700 and 0.7800 for most of May. Optimism surrounding the Australian recovery will continue to battle against an extremely dovish RBA, keeping the pair rangebound in the shorter term. The RBA remains committed to “maintaining highly supportive monetary conditions” until the central bank’s inflation and employment targets are met. AUD/USD may continue to struggle in the coming sessions as traders will begin to look to the June FOMC meeting for any hint at a potential taper in Fed asset purchases. Taper talk may continue to dominate the markets in the weeks ahead, and it has the potential to keep AUD/USD rangebound for the time being.


Crude Oil Prices Hit 2-Year Highs on Upbeat Demand Outlook, Falling Stockpiles

WTI traded modestly higher after hitting a two-and-half year high on Tuesday
Prices were bolstered by strong US economic data, an OPEC+ decision to lift output in July as well as a delay in US- Iran nuclear talks
Markets foresee a 2.27-million-barrel decline in crude inventories for the week ending May 28th

Crude oil prices extended higher during Wednesday morning APAC trade before pulling back slightly mid-day. Prices surged 1.46% a day ago and closed a hair beneath the $ 68.00 figure. Yet this still marked the highest level seensince October 2018. WTI prices have more than doubled from November of last year, boosted by revitalized demand as the global economy recovers from the pandemic. US crude inventories have been falling in the past few months, underscoring strong underlying demand.
OPEC+ gave a green light to a further increase production by 850k bpd in July, as agreed at a meeting in early April. The oil cartel painted a rosy demand outlook for the second half of this year, forecasting that global inventories could fall by 2 million bpd during the September to November period. Saudi Arabia’s energy minister Prince Abdulaziz bin Salman said demand “has shown clearsigns of improvement”, boosting investor confidence.
Meanwhile, nuclear talks between Iran and the US have paused for now and an Iranian official said a deal is expected to be finalized in August. This alleviated concerns surrounding a potential near-term rise in output from the Middle Eastern country if a nuclear accord is revived.
More encouragingly, the ISM US Manufacturing PMI reading smashed market forecasts, underscoring economic strength. The reading came in at 61.2, exceeding a baseline forecast of 60.9 and marking the 12thconsecutive month of expansion. Demand, consumption and inputs registered strong growth compared to April, with supply shortages and labor constrains pointing to a strengthening price outlook.

US ISM Manufacturing PMI – May 2021

The Energy Information Administration (EIA) will report weekly inventories data later today. Markets anticipate a 2.27-million-barrel draw in stockpiles. A larger-than-expected decline may serve to underpin crude oil prices, whereas a smaller one or an increase would likely do the reverse (chart below). Total inventories have fallen to a three-month low of 484.35 million barrels, and this trend looks set to continue with the arrival of the summer driving season.

Technically, WTI decisively breached above a key resistance level at 66.50 (the 200% Fibonacci extension) this week, and thus opened the door for further upside potential. The overall trend remains bullish-biased, as suggested by the upward-sloped SMA lines. The MACD indicator is attempting to breach a downward trendline as well, showing that bullish momentum may be building.
The previous resistance – $ 66.50 – has now become an immediate support level.

WTI Crude Oil Price – Daily Chart

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