Extended long positioning, greenback strength weighs on gold

The greenback appreciated after the FOMC meeting ended early this month


GOLD price has slipped to its lowest since mid-April due to the extended long positioning and the strength in the US dollar, which is the cause for the precious metal’s retreat.

The strength of the dollar has also weighed on other precious metals.

Oanda Asia Pacific Pte Ltd senior market analyst Jeffrey Halley said the greenback appreciated after the Federal Open Market Committee (FOMC) meeting ended early this month with a more hawkish policy bias leading to weakness in the commodities complex.

“Much the same factors are affecting platinum with some additional ones. China’s clampdown on commodity prices has sent industrial metals lower as a whole temporarily including platinum and palladium,” he told The Malaysian Reserve.

He added the global chip shortage is severely disrupting automotive production and is likely crimping demand for platinum and palladium in catalytic converters, their main industrial use.

“A weaker US non-farm payrolls number on Friday should see weakness on the US dollar return, as Federal Reserve (Fed) tapering expectations get wound back. That will be broadly supportive of precious and industrial metals,” he said.

The payrolls data is going to be the main driver for gold in the near term with strong wage inflation and job growth numbers likely leading gold to trade lower as it pushes the Fed to likely start hiking interest rates next year.

RHB Retail Research technical analyser Joseph Chai stated the metal saw selling pressure picking up on Tuesday, falling to close at US$1,763.60 (RM7,320.70) a troy oz.

“After starting Tuesday’s session at US$1,778.80, it barely touched the US$1,779.20 day high and turned lower towards the day low of US$1,750.10 before settling at US$1,763.60.

“From the price action, the commodity managed to find an interim base near the US$1,750 support level,” he said.

He added the US$1,750 level represents a crucial psychological level for gold and breaching it may open the door for further downside correction.

“Since the bears are in the driver’s seat now, we maintain our negative trading bias.

“We recommend traders maintain the short positions initiated at US$1,873.30, or the closing level of June 3 while for risk-management purposes, the trailing-stop level is set at US$1,790,” he said.

Bloomberg reported gold is headed for the biggest monthly drop in over four years as the dollar strengthened, while risk sentiment is also in play as the US shares edge up to a record on economic optimism and signs of the vaccine countering highly infectious Covid-19 strains.

Data on Tuesday showed the US consumer’s confidence soared in the month of June.

IG Asia Pte Ltd market strategist Yeap Jun Rong told Bloomberg weakness is catching hold of gold with a brief period of consolidation after a strong sell-off on the Fed System’s new policy outlook.

“The increase in the Conference Board’s Index suggests improving consumer spending ahead, leading to a stronger US dollar which weighed on gold prices,” he said.

As of 7.30pm yesterday, spot gold was at US$1,759.40 an oz.

The US Dollar Index futures stand at 92.08 as of 3.20pm yesterday. It has risen against a basket of major currencies, posting its largest single daily gain in roughly two weeks, which also spells investor’s confidence in America’s jobs report for June.