Fundamental analytics

Gold remains under pressure amid declining demand for defensive assets

XAUUSD

On Wednesday, gold was trading in different directions and ended trading almost at the opening levels of the day. The important economic and geopolitical news that had an impact on the market interfered and investors could not decide on the further trend direction.

A significant pressure on the price was exerted by the situation on the stock markets, where for the second day in a row continues an increase in the main indices, due to a decrease in tension in international trade. Therefore it improves the prospects for the development of the global economy. First, despite the aggravation of the trade conflict between the United States and China, investors are still confident that a trade agreement will be signed in the coming months, since both parties are interested in this. Secondly, yesterday, the White House administration announced that Donald Trump decided to postpone the decision to impose import duties on cars and parts for them. Third, the day before, US Treasury Secretary Stephen Mnuchin said that the United States was close to signing an agreement with Canada and Mexico on steel and aluminum tariffs. Gold appears on the market as a defensive asset, therefore, against the background of the investors' growing appetite for risk, the demand for yellow metal is declining.

The factors supporting gold should include weak economic data from the United States and the escalation of the conflict between the United States and Iran. Unexpectedly very weak retail sales figures were published yesterday in the United States. The volume of retail sales in April fell by 0.2%, with the expected growth rate of 0.2%. The base sales index was 0.1%, with a forecast of 0.7% growth. Immediately after the publication of these data, the Atlanta Federal Reserve Bank lowered its forecast for US GDP growth rates for the 2nd quarter from 1.6% to 1.1%. Against this background, investors will pay even more attention to the publication of economic statistics from the United States, and if the data indicates a decline in economic activity, the US currency may be under very strong pressure, which will be a strong support factor for the precious metals market. Today, the reference for investors will be the data on the issued building permits for April and the index of manufacturing activity from the Federal Reserve Bank of Philadelphia.

The attempt of buyers to consolidate above the level of 1300.00 was not crowned with success, so today we are waiting for the further development of the backward price movement towards the level of 1289.00. Accordingly, it will be possible to count on the resumption and continuation of the bullish movement only after the breakdown of the resistance of 1300.00.

Resistance Levels: 1300.00, 1310.00, 1325.00;

Support levels: 1293.50, 1289.00, 1284.00.

The main scenario - a decline to 1289.00.

An alternative scenario - fixing above 1300.00 and rising to 1310.00.

The news background for gold remains moderately negative. There are prerequisites for the further development of the correctional wave on the chart, so we’ll consider shorts that we should look for near the 1300.00 level.


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