Gold Prices Eye $1900 as Chinese PPI Beat Signals Building Price Pressures

Gold prices rebounded slightly as yields fell, Chinese PPI surged to 13-year high

US inflation data will be closely eyed by bullion traders for clues about price growth and Fed tapering stimulus Selling pressure seems to be building above the $1,900/oz resistance level

Gold prices traded modestly higher after falling -0.37% a day ago, as weakening Treasury yields and a cheaper US Dollar boosted the appeal of the non-interest-bearing metal. China’s producer price index (PPI) surged to 9.0% in May, a level not seen since 2008, also surpassing a baseline forecast of 8.5%. PPI measures the change in prices at the factory gate, thus serving as a leading indicator for the CPI as producers may pass on higher production costs to the end consumers.

China’s official consumer price index (CPI) came in at 1.3% YoY in May, a notable increase from April’s reading of 0.9%, but below market expectation of 1.6%. The slight miss may be attributed to a modest 0.3% rise in food prices as the price of pork tumbled 23.8% from a year ago. Yet, a rapid surge in crude oil, iron ore, base metals and other bulk commodities pushed non-food prices higher. Further price pressure may be seen in the months to come given a significant climb in PPI.

Rising price pressures may continue to support gold, which is widely perceived as a store of value and hedge against inflation. On the demand side, Chinese buyers have returned to the bullion market since April after the People’s Bank of China (PBoC) eased curbs on non-monetary gold imports to meet rising domestic demand. Since then, Chinese gold imports have picked up significantly (chart below). As the world’s third-largest gold importer, Chinese buyers may provide medium-term support to gold prices.

Looking ahead, traders are eyeing Thursday’s US inflation data for clues about rising price levels in the US and their ramifications for Fed monetary policy. US headline inflation is expected at 4.7% YoY in May, hitting the highest level since 2008. A large deviation from this expectation may lead to heightened market volatility, especially for stocks, forex and precious metals. While a higher-than-expected reading may bolster precious metals, it may also stoke tapering fears and undermine their gains. This mixed dynamic renders gold prices vulnerable to heightened volatility during and after the data.

China PPI vs. Gold Prices – 2000 to 2021

Technically, gold prices are facing selling pressure above a psychological resistance level of $1,900. Prices remain in an “Ascending Channel” formed since early April, suggesting that the overall trend remains bullish-biased. Breaching above $1,900 may open the door for further upside potential with an eye on $ 1,922 (the 61.8% Fibonacci retracement). The MACD indicator formed a bearish crossover, signaling that a technical pullback maybe underway.

Gold Price – Daily Chart

Crude Oil Forecast: EIA Inventory Stocks In Focus Following Bullish API Print

Crude Oil climbs above the 70 handle for first time since the pandemic began EIA crude oil stocks in focus after API post another weekly decline

Price may rise further but negative RSI, MACD divergences concerning

WTI Crude oil prices achieved an important milestone today, climbing over the psychologically imposing 70 level as energy traders bet on a bullish demand picture. One bolstered by increasing vaccination rates and positive momentum in global travel measures. Much uncertainty remains, however. Higher highs are all but guaranteed given the fragile conditions amid the ongoing Covid pandemic.

Rising oil prices have helped spur inflationary fears in markets given the commodity is typically viewed as a key gauge to measure demand pressures in the global economy. While on the subject, traders will have a close eye on US inflation figures, due out later this week. The consumer price index (CPI) is expected to cross the wires at 4.7% on a year-over-year (YoY) basis. When stripping out food and energy prices, which include oil, the figure drops to 3.5% YoY, still well above the Fed’s 2% average target over time.

One potential headwind to rising oil prices as of late has centered around the return of Iranian oil to markets. Traders have been watching talks between the United States and Iran closely in recent weeks. The aim between the US and the major oil-producing country is to return to compliance with the Joint Comprehensive Plan of Action (JCPOA), which had many believing an agreement would see millions of barrels of Iranian oil return to the market.

However, oil prices paced higher after US Secretary of State Anthony Blinken cast doubt on that scenario, even if Iran and the US do return to compliance with the JCPOA terms. Iran has been accused of only accelerating its efforts toward producing nuclear weapons since the Trump administration removed the US from the deal in 2015. According to Reuters, The Secretary of State on Tuesday told the Senate Foreign Relations Committee:

“I would anticipate that even in the event of a return to compliance with the JCPOA, hundreds of sanctions will remain in place, including sanctions imposed by the Trump administration. If they are not inconsistent with the JCPOA, they will remain unless and until Iran’s behavior changes.”

The immediate focus for oil comes in the form of inventory numbers due Wednesday from the US Energy Information Administration (EIA). Per the DailyFX Economic Calendar, a 2.036 million barrel reduction is expected to cross the wires for the week ending June 4, which would be the third consecutive inventory draw. The American Petroleum Institute (API) report showed a 2.108 million barrel draw today, although the private entity report usually takes a backseat in terms of relevance to the EIA report. Check out the video above for further analysis.

CRUDE OIL TECHNICAL BREAKDOWN

While prices are slightly above the psychologically imposing 70 handle, a decisive break higher is likely needed to cement the victory and place the level as a possible area of support on the next turn lower. That said, the technical outlook favors more upside after breaking higher from an Ascending Triangle pattern last week.

That said, the Relative Strength Index (RSI) and MACD oscillators are flashing a degree of negative divergence between the March swing high and current prices, although the latter is trending bullishly higher above its signal line. Moreover, the rising 20-day and 50-day Simple Moving Averages (SMA) are also showing bullish upside energy. Watch for the 70 handle to hold to confirm bullish momentum in the near term.

CRUDE OIL DAILY CHART

Dow Jones in Tight Range, Hang Seng, ASX 200 May Edge Higher

Dow Jones, S&P 500 and Nasdaq 100 indexes closed -0.09%, +0.02% and +0.06% respectively Traders are eyeing Thursday’s US inflation figures for fresh catalysts

GameStop earnings may serve as a reality check for Reddit day traders

Asia-Pacific markets are positioned for a mixed open. The ASX 200 index aims fresh records

flation, Small-cap Rally, GameStop, Oil, Asia-Pacific Week-Ahead:

The Dow Jones Industrial Average traded in a narrow range over the past few days. Investors are waiting for Thursday’s US inflation figures for clues about price levels and their ramifications for Fed monetary policy. It appears that conditions are gradually maturing to warrant a debate on Fed tapering bond purchases. Before a clearer picture is drawn on that prospect, large-cap stock indices may be reluctant to move significantly higher.

The small-cap-centric Russell 2000 index rose 1.06% overnight, outperforming large-cap indices. This suggested that investors were probably rotating into the so-called meme stocks amid a renewed wave of retail speculative activity.

AMC entertainment and GameStop, the two popular stocks in the Reddit forum, had another volatile session. AMC rallied as much as 10.2% before erasing most of gains. GameStop surged as much as 23% before closing 7.14% higher. GameStop will announce earnings today, with a loss of $0.82 per share expected. This may remind traders that the current price has perhaps deviated too far away from the stock’s intrinsic value, thus rendering it vulnerable to a drastic pullback when the tide recedes.

On the commodities front,WTI crude oil prices surged 1.11% to a fresh two-and-half year high of $70.00. The underlying demand for energy remains robust as highlighted by OPEC+ and the recent drop in crude inventories. The summer driving season and successful vaccine campaigns in the US and Europe are also supporting fuel consumption. Higher oil prices may bolster the commodity-linked currencies such as the Canadian Dollar and Norwegian Krone.

WTI Crude Oil Prices at 2.5-Year High

Asia-Pacific markets are positioned for a mixed start on Wednesday. Futures in Japan, mainland China, Taiwan, South Korea and Thailand are in the red, whereas those in Australia, Hong Kong, Singapore, Malaysia and India are in the green. Looking ahead, Chinese inflation data and Bank of Canada interest rate decision dominate the economic docket today.

Hong Kong’s Hang Seng Index (HSI) appears to have entered another consolidative period after the Biden administration banned investment in a widened list of 59 Chinese companies with alleged ties to defense or surveillance technology sectors. Meanwhile, stock connections registered net southbound outflow for three days in a row, hinting that mainland investors are pulling their hands off. This may signal further price weakness as the stock connections account for nearly a quarter of the entire trading volume on the HK stock exchange.

Hang Seng Index vs. Daily Southbound Net Flow – 12 Months

Looking back to Tuesday’s close, 4 out of 9 Dow Jones sectors ended higher, with 43.3% of the index’s constituents closing in the green. Energy (+0.91%), industrials (+0.21%) and materials (+0.20%) outperformed, whereas consumer staples (-0.93%) trailed behind.

Dow Jones Sector Performance 08-06-2021

Dow Jones Index Technical Analysis

The Dow Jones index may be challenging the 200% Fibonacci extension level (34,920) again. A successful attempt may open the door for further upside potential, whereas a failed one may result in a bearish “Double Top” pattern. Prices remain within an “Ascending Channel” formed since early November, the ceiling and the floor of which serve as key support and resistance levels respectively. Bearish MACD divergence suggests that bullish momentum may be fading however.

Dow Jones Index – Daily Chart

Hang Seng Index Technical Analysis:

The Hang Seng Index (HSI) failed to breach the neckline of the “Double Bottom” chart pattern and has since entered a technical correction. 29,350 remains an immediate resistance level, whereas the 20- and 50-day SMA lines may be viewed as immediate support levels. The MACD indicator formed a bearish crossover, suggesting that bearish momentum is prevailing.

Hang Seng Index – Daily Chart

ASX 200 Index Technical Analysis:

The ASX 200 index is trading at record highs and may be aiming the 161.8% Fibonacci extension (7,340) in the days to come. Prices formed consecutive higher highs and higher lows, marking a classic uptrend. The MACD indicator formed a bullish crossover and trended higher, suggesting that upward momentum is dominating.

ASX 200 Index – Daily Chart

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