- 70% of all SWFX positions are short today
- Possibly hawkish Fed meeting minutes may significantly strengthen the Greenback and push gold futures down
- Daily technical studies are mixed, while yesterday they indicated to the upside
- Economic events to watch over the next 24 hours: Euro zone CPI (Apr); US Crude Oil Inventories (May 13); FOMC Meeting Minutes; UK Claimant Count Change (Apr), Unemployment Rate (3M-Mar) and Average Weekly Earnings (Mar)
Gold declined on Wednesday amid robust US economic data and comments from the Fed officials bolstered expectations that the US central bank could soon hike interest rates. The cost of living in the US recorded the biggest increase in more than three years in April, since gasoline and rents rose, pointing to a steady inflation build-up. Consumer prices increased to 0.4%, which is the biggest gain since February 2013, following a 0.1% increase in March. A Fed policymaker said he will push for an interest rate lift in June or July, and two others anticipate up to three rate hikes this year. Holdings in SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, climbed 0.56% to 855.89 tonnes on Tuesday, the highest level since November 2013.
Japan's economy grew at the fastest pace in a year in the first quarter, led by a leap year consumption boost. Nevertheless, analysts said the rebound was not strong enough to fan concerns over a contraction in this quarter. The world's third biggest economy expanded 0.4% in the first quarter, according to Japan's Cabinet Office, coming in above economists' forecast for a 0.1% expansion and marking the strongest rate of growth since the March 2015 quarter. Measured on an annual basis, Japan's economy grew at a rate of 1.7% in the reported period, easily overshooting expectations of a 0.3% gain. Increasing gross domestic product reverses a contraction in the fourth quarter of 2015 and means Japan has escaped another technical recession, defined as two quarters of negative growth in a row. Private consumption, which accounts for 60% of GDP, increased 0.5%, more than double the median market forecast, as households boosted spending on televisions, food and beverages, and recreation. Yet the rebound failed to offset a 0.8% decline in the previous quarter. Nevertheless, consumption added 1 percentage point to annualized growth, government consumption contributed 0.6 percentage points and trade chipped in 0.8 percentage points of growth.
Canada's manufacturing sales recorded another decline in March after falling the most in more than seven years in February. According to Statistics Canada, manufacturing sales slipped 0.9% to C$50 billion in March amid weakness in the transportation equipment and primary metals industries. Nevertheless, the decline was less steep than the 1.8% decrease predicted by analysts. Also, Statscan revised February's fall to 4.0%, the largest month-on-month decrease in almost seven years, from an initial 3.3%. Sales fell in 16 of 21 industries, accounting for 88.3% of Canadian manufacturing. Overall inventories slipped by 0.4% to their lowest level since January, while new orders fell 2.2%. The Bank of Canada currently predicts growth of 2.8% during the first quarter, but warns that the boost is likely temporary, with much weaker rate of expansion estimated for the three months through June. Moreover, the forecast for the second quarter is likely to be further downgraded due to the economic impact of Alberta wildfires. Back in April, the BoC maintained its interest rate at 0.5%, after trimming it twice last year due to the negative effects of lower oil prices. The central bank's latest statement still sounded dovish, with sluggish global growth and uncertainty surrounding lower oil prices undermining the Canadian economy.
Upcoming fundamentals: Will FOMC minutes increase probability of June hike?
Analysts anticipate that more light will be shed on the possibility of the Fed's interest rate increase as soon as next month when the FOMC committee meets in the middle of June. Today the central bank will publish the minutes of its most recent meeting that took place last month. While many members of the committee continue advocating in favour of the hike next month, the minutes (due at 18:00 GMT) will most probably confirm that discussions were indeed in place.
Gold retreats before FOMC minutes
Three consecutive days of gains resulted in the testing of the weekly R1 back on Monday, but yesterday gold has been relatively quiet in its movements. As long as it keeps fluctuating above the weekly pivot (1,272.24), the outlook will maintain a mild positive bias. However, the risks are skewed to the downside ahead of the upcoming release of FOMC meeting minutes later today. However, a real negative shift in expectations will be possible, if the bullion slips under the monthly pivot and 20-day SMA, both placed around the 1,266 mark. Daily technical indicators are no longer giving bullish signals today.Daily chart
The one-hour chart's case is quite similar to the one we have seen 24 hours ago. Gold continues trading below the March upper downtrend. More strength, however, is not fully ruled out, as XAU/USD is underpinned by some major demand at the 200-hour SMA (1,274.09) and the May 10-17 uptrend at 1,271.
Hourly chart
7/10 traders are betting gold will tank
Meanwhile, OANDA clients are overwhelmingly positive (59.9%) with respect to gold. On top of that, 51.5% of SAXO Bank clients are betting the metal will grow in price.