Gold saw very thin volumes over a three-day holiday weekend where London and US markets were closed. Gold dropped Sunday night in Asia to test the important $1200 mark, a 15-week low. Prices inched up on Monday, absent support from Europe and the US. Prices edged up again overnight into this morning, up almost $9 from Friday's New York close.
A big jump in GDP in India resulted in gold bargain hunting and stocking up by jewellers. A rebound in farm output had first quarter GDP gain 7.9% year on year, and hints at more disposable income for rural Indians -- income that will likely go into gold.
Today's technical numbers have first resistance at $1,215, then $1,223. First support is at $1,208, then $1,200. If prices break convincingly below the psychologically important level of $1,200, expect to see weak hands folding, sending prices lower.
The British pound blows in the wind at the whim of the latest Brexit polls. Earlier this month, it gained on news that the "Remain" side was ahead in polls, but has been punished today as bookies report that bets on a "Leave" victory are piling up. William Hill bookmakers said that 85% of the Brexit bets over the long weekend were on the "Leave" side, forcing them to increase the odds of a Brexit happening. Historically, the bookies have a better record than the much maligned pollsters.
The dollar has given up early gains to trade flat in New York, despite the biggest one-month jump in consumer spending since August 2009. Consumer spending in April gained 1.0%, against expectations of 0.7%. March consumer spending was revised downward from +0.1% to 0%. The Fed's preferred measure of inflation, core Personal Consumption Expenditures, rose 1.6% year to year in April, matching March's gains.
The dollar rally reversed when economic activity in the Midwest, as measured by the Chicago Purchasing Managers Index, fell 1.1 points to 49.3. Any reading below 50 shows a drop in business activity. This is the sixth time in twelve months that the Chicago PMI has fallen into contraction. Consumer confidence also fell, hitting a six month low as people soured on job prospects.
Across the Atlantic, EU consumer prices saw another month of deflation, coming in at -0.1% year to year. This may influence the European Central Bank to cut benchmark rates even deeper into negative territory on Thursday, which would force banks to start passing the losses along to depositors. This will likely increase demand for gold, as keeping cash in the bank will incur monthly charges.
While inflation continues to show resilience in the US, conditions in Japan and Europe may convince the Fed to hold off raising benchmark interest rates in two weeks. Looming over both the ECB and the Fed is the Brexit vote on June 23, eight days after the FOMC meeting. Even though predictions of a June rate hike have risen from 2% early this month to 26% today (due to a publicity offensive by Fed officials,) one would hope that Fed Chair Janet Yellen doesn't have her head in the clouds when it comes to the economic state of our allies.
A July rate hike, estimated this morning at 61%, would make more sense, as the outcome of the Brexit referendum will be known.
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