Precious Metals News Update - 29 May 2018

29 May 2018

COMMENTS / HIGHLIGHTS:

With market activity being heavily affected by long weekends in the UK & US, there were still some noteworthy developments on Monday pertaining to the political landscape in Italy (and its ramifications for Europe), as well a continuation of the precipitous slide in crude oil values that had commenced late last week.

Turning to the energy markets first. Since peaking at USD 72.90/barrel last Wednesday, WTI’s nadir at USD 65.80/barrel yesterday represented a 9.73% retreat. Commerzbank’s ‘Commodities Daily’ cites the driver of the decline as being “Saudi Arabia would prefer to expand production by 300,000 barrels per day, while Russia would prefer a figure of 800,000 barrels per day. Other sources are even talking of a possible increase in output by 1 million barrels per day. This would offset the shortfall in production as compared with the agreed output level that is the result of production outages in Venezuela, Angola and Algeria. Ultimately, the decision will be taken when OPEC and the non-OPEC countries taking part in the cuts meet on 22 June. Oil production is also continuing to rise sharply in the US, which is likewise putting pressure on prices.”

In Italy, President Mattarella’s refusal to sanction a government formed by a coalition of the avowedly anti-EU, Lega and Five Star parties, is being characterised as a coup d’etat on the basis that the President of a democratic European state has for the first time in memory, used his powers to prevent the formation of a government with a parliamentary majority. This has led for calls for fresh elections which are being viewed as a de-facto referendum on the supra-national European Union machinery and it’s straightjacket currency, the Euro. The risk in President Mattarella’s strategy that is likely to send the country head to the polls, is that the anti-establishment Lega and Five Star parties are returned with increased majorities. Lega leader Matteo Salvini had the following to say on Monday; “The upcoming elections will not be political, but instead a real and true referendum ... between who wants Italy to be a free country and who wants it to be servile and enslaved,” “Today Italy is not free; it is occupied financially by Germans, French and Eurocrats.” Italian 10 Year bond yields surged on Monday from 2.35% to 2.69% and Italian bank shares plummeted.

US 10 Year Treasury yields gapped lower at the Far Eastern open today, as a result the JPY has surged against the Greenback but the Aussie dollar was under heavy pressure this morning and with XAU/USD holding steady, XAU/AUD has surged higher purely on the back of the move in the AUD/USD.

The end of the week will bring the always important US Bureau of Labor Statistics data on Friday, with the headline Non-Farm Payrolls figure for May expected to show a +190K increase and the consensus for the Unemployment rate pegged at 3.9%

TECHNICAL COMMENTS:

XAU/USD: A ding dong battle is being waged between bearish speculative interests in their attempt to break the support line which commenced on 16/12/16 at USD 1121.00 (and beneath which XAU/USD has yet to close), and bullish speculative interests attempting to defend the same support line and to regain the upper hand by pushing gold beyond formidable technical resistance in the form of the lower boundary of the sideways trading range that XAU/USD had been wedged between since the start of 2018 (USD 1306.00) & the conjunction of the 200 Day moving average (USD 1307.75). Only time will settle the matter one way or the other, but a better view will emerge with the return of market liquidity on Tuesday when UK and US investors return from their long weekend.

XAU/AUD: XAU/AUD continued its advance on Friday, following on from Thursday’s ‘Bullish engulfing’ candlestick on the Daily chart but halted at AUD 1730 (55 Day moving average). After yesterday’s Far Eastern retreat to various support levels between AUD 1708 and 1712, XAU/AUD has surged higher this morning in Far Eastern trading with the AUD/USD falling from 0.7553 to 0.7516 while XAU/USD firmed at the same time. A close above AUD 1733.00 would free the way for XAU/AUD to move back towards the top end of the previous sideways range between AUD 1714 and 1757.

Good luck.

Regards,
Andre