Gold Trading Gingerly After FOMC Minutes, Eye On G-7

Data released on Sunday by the National Bureau of Statistics in China, reported that the economy grew at a slower than expected pace in April. On yearly basis, the total output of manufacturers rose 6% last month, lower than economists’ expectation of a 6.5% increase and below the 6.8% reading for the previous month. The slowdown in industries already suffering from overcapacity such as coal and steel was supposed to be the main reason for the decline in the industrial production.

In addition, retail sales for April also failed to meet estimates of a 10.6% increase. The latest data came in t a growth rate of 10.1% compared to the same period last year. This compares with a rise of 10.5% in March.

Unexpectedly disappointing data from the world’s growth engine economy, caused  investors to rush into safe-haven assets, namely the yen, swiss franc and gold.

However, the yen currently is facing the probability of further depreciation, as the Bank of Japan this week restated that the central bank may deploy more monetary easing, with to boost inflation towards its target of 2%. Hence, cash flows are moving out of Japanese yen into other markets, and gold is always considered the perennial safe haven.

Meanwhile, according to some clues from the G7 meeting today, instead of further rate cuts, the European Central Bank is likely to undertake some unconventional measures to stimulate the EU economy if necessary.

The precious metal is still eyeing the statements from the 2 day G7 meeting for clearer signals on future policy positions of different banks/authorities to initiate the next major price move.

In today’s trading session, the US dollar has surged higher, extending its gains for three consecutive weeks, supported by the FOMC meeting minutes released on Wednesday. The minutes from the April meeting indicated that a rate hike next month was a reasonable possibility. The dollar index DXY climbed to 95.31, the highest level since March 29. A stronger dollar may exert further downward pressure on gold prices.

gold d1

Fig. GOLD D1 Technical Chart

In general, GOLD is on track to fall after edging up to the resistance of 1304.39 on May 02, the highest level in over a year. The price is anticipated to move sideways for the rest of the day awaiting clues from the G7 meeting. A bounce-back may occur if the level 23.6% of Fibonacci retracement is tested and broken. The signal trend indicator is currently encouraging a long position.

Trade suggestion

Buy at 1258.79, Stop loss at 1247.82, Take profit at 1270.61

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