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Another Boring Week for Gold?

May 19, 2014 at 20:16 by Vladimir Vyun

Gold rallied a bit last week, though it still does not have a discernible trend. Can this week change such behavior or sideways trading will persist?

Let’s look at the events that might impact the precious metals in the near future. The first half of the week is relatively uneventful, meaning that gold should maintain its performance from the previous week (which happens to be a bullish one) but also should be very susceptible to changes of the traders’ mood. Starting with Wednesday, things look much more interesting.

Probably the most important event for the market and potentially most influential on the bullion are the minutes of the latest policy meeting of the Federal Reserve, released on May 21, though speech of Fed leader Janet Yellen the same day may also impact the market to a great degree. Though US policy makers made it clear that they are going to gradually reduce monetary stimulus, any changes to rhetoric, even minor ones, can easily shift the traders’ mood. The Bank of England also releases its policy minutes on the same day, while the Bank of Japan will announce a result of its policy meeting, which ends on Wednesday too. While the latter two events may have a minor effect on the bullion itself, they can easily affect the Forex market, influencing gold prices indirectly through changes to the dollar’s behavior.

There are several important economic reports scheduled for this week, which may also affect the market sentiment and, as a result, prices for various commodities, including gold. From the United States, data about unemployment claims (May 22) and housing reports (May 22–23) will be released. From Europe, indicators for French and German manufacturing (May 22) and the German business climate (May 23) should affect the market. As for Great Britain, inflation data (May 20), retail sales (May 21) and GDP report (May 22) will be major releases.

It looks like Ukraine will have limited impact on prices of gold as tensions in the country calmed to a degree ahead of the presidential elections on May 25. There were reports that Russia called its troops away from the border with Ukraine.

India, on the other hand, looks like a supportive factor for the precious metal as the new government may relax the limit on gold imports. The rupee rallied after the announcement of the election results in the Asian country, making it easier for Indians to buy gold. It will be bullish for the bullion if the currency maintains its strength.

What outlook for the commodity analysts have? In general, it is expected that gold will continue to trade sideways, while volatility will shrink even more. TradingNRG said:

Based on the upcoming news and recent developments, I guess the volatility of gold and silver is likely to further diminish and they may remain close to their prices. I remain neutral.

DailyFX was also neutral on the precious metal but with downside bias:

Bottom line: look for a decisive break of this pattern next week with a move surpassing the May opening range to offer further clarity on our medium-term directional bias. The broader outlook remains weighted to the downside sub $1334.

The technical analysis also suggests that prices have bigger probability to break to the downside than to the upside.

If you have any questions and comments on gold today, use the form below to reply.