Market Update | 28/06/2023

Gold revisits the recent three-month low after strong United States data, looks set to test $1900

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Today’s Observations

Gold posted a high for the day of $1930 in Asia on Tuesday but eased to $1920 in Europe before revisiting the highs in early New York trading ahead of the release of a raft of important United States economic reports.

Stronger than expected Durable Goods Orders and New Home Sales combined to intensify expectations of a resumption by the Federal Reserve of its interest rate hiking program in July and sparked a sell-off in gold to $1912, matching its recent three-month low amid reasonable trading volume.

The yellow metal ended down 0.47% at $1914 and has traded narrowly between $1913 and $1917 so far this morning with all eyes on Jerome Powell’s speech later today at the European Central Bank’s Central Bank Forum looking for signals on the United States Central Bank’s monetary policy.

Gold has a tired feel and looks vulnerable to a test of the pivotal $1900 level, although there may not be enough momentum to trigger a clear break lower. The expected trading range is $1900 to $1925. Silver bucked the bearish tone, adding 0.31% to $22.86, but platinum ended marginally lower at $927, and palladium fell 0.84% to $1291.

Market Commentary

June 28, 2023 (Reuters) – Gold prices hovered near three-month lows as upbeat United States economic reports made a strong case for rates being higher, yet traders awaited cues from Federal Reserve Chair Jerome Powell and more economic data for a path ahead on rate-hikes.

Spot gold was little changed at $1,913.82 per ounce by 0120 Greenwich Mean Time, close to a three-month low of $1,910 hit on June 23. United States gold futures were little changed at $1,924.50. The dollar index held steady.

United States consumer confidence increased in June on labour market optimism, while new single-family home sales rose more than expected in May, leading to expectations that the Federal Reserve would need to continue to raise rates to bring inflation down to its 2% target.

Gold fell up to 0.6% after the data. Investors expect a 77% chance of a rate hike in July, with rate cuts seen from March 2024 onwards, according to the Chicago Mercantile Exchange’s Fedwatch tool. High-interest rates discourage investing in non-yielding gold.

Investors will keenly watch Thursday’s personal consumption expenditure (PCE) price index data for May, first quarter Gross Domestic Product data, and weekly jobless claims for the week ended June 23. Core-PCE is forecast to stay unchanged at 0.4%.

Federal Reserve Chair Powell will speak at a policy panel before the European Central Bank Forum on Central Banking in Sintra at 1330 Greenwich Mean Time. Sources told Reuters on Tuesday that European Central Bank policymakers don’t expect inflation to ease enough to pause rate hikes this summer.

Elsewhere, Japan’s top currency diplomat Masato Kanda said authorities would take appropriate responses if the yen slumps excessively after the currency fell to fresh seven-month troughs versus the dollar overnight. Spot silver fell 0.1% to $22.86 per ounce, platinum was down 0.7% to $918.57 while palladium rose 0.1% to $1,296.88.

Economic Analysis

New orders for United States manufactured durable goods jumped 1.7% month-over-month in May 2023, following an upwardly revised 1.2% rise in April and easily beating market expectations of a 1% decline.

It marks a third straight month of rising durable goods orders, led by a 3.9% surge in transportation equipment, namely non-defense aircraft and parts (32.5%) and motor vehicles (2.2%).

Excluding transportation, new orders increased 0.6%. Demand also increased for capital goods (2.8%), namely non-defense ones (6.7%), machinery (1%), computers and electronics (0.3%), electrical equipment (1.7%), and primary metals (0.5%).

On the other hand, orders declined for defense aircraft and parts (-35.4%) and defense capital goods (-14.7%) and were flat for fabricated metal products. Excluding defense, new orders rose 3%.

Meanwhile, orders for non-defense capital goods excluding aircraft, a proxy for business spending plans, increased 0.7%, after a downwardly revised 0.6% rise in April.

Sales of new single-family houses in the United States jumped 12.2% month-over-month to a seasonally adjusted annualized rate of 763,000 in May of 2023, the highest level since February last year, and compared to forecasts of 675,000.

Sales increased 17.6% to 40,000 in the Northeast, 17.4% to 175,000 in the West, 11.3% to 471,000 in the South, and 4.1% to 77,000 in the Midwest. The median price of new houses sold was $416,300 while the average sales price was $487,300, compared to $450,700 and $521,500 respectively a year ago.

There were 428,000 houses left to sell, corresponding to 6.7 months of supply at the current sales rate. Source: United States Census Bureau.

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Palladium Chart ($/oz)

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