Gold Remains Above $1300 On Ukraine Worries

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 |  Includes: GLD, UDN, UUP
by: Dean Popplewell

By Kenny Fisher

Gold prices are flat on Tuesday, as gold remains above the $1300 level. In the European session, the gold spot price is $1308.22. On the release front, it's a quiet day in the US, with only three events on the schedule. Today's highlight is Trade Balance.

Gold tends to move higher when there is geopolitical tension, as investors look for a safe-haven asset. This has been the case with the recent upsurge in violence in Ukraine. Clashes continue between Ukrainian government forces and pro-Russian militants, with casualties on both sides. The US has threatened Russia with further sanctions if Russia does not rein in the separatist forces, which seek to undermine the Ukraine government. Meanwhile, Russia is maintaining a large military presence on its border with Ukraine, and the threat of a Russian invasion continues. Elections are scheduled in Ukraine in late May, but if the violence continues, the vote could be postponed and we could see a sharp reaction in the markets.

US employment releases looked excellent on Friday. Nonfarm Payrolls jumped to 288 thousand, easily beating the estimate of 216 thousand. The Unemployment Rate kept pace, dropping to 6.3%, its lowest level since September 2008. At the same time, the participation rate in the labor force dropped, so slack remains in the US job market, despite the strong releases in April.

As expected, the Federal Reserve trimmed its QE program by $10 billion last week. This marks the fourth cut since December, reducing the asset purchase scheme to $45 billion/month. The tapers are no longer creating headlines as they did just a few months ago, and the dollar didn't get any lift against its major rivals. What interested the markets more was the Fed statement that interest rates would remain low for a "considerable time" after QE ends. The markets expect QE to wind up before the end of the year, so we could see a rate hike in early 2015, depending of course, on the strength of the US economy and the job market.

XAU/USD for Tuesday, May 6, 2014

Forex Rate Graph 21/1/13

XAU/USD May 6 at 11:15 GMT

XAU/USD 1311.26 H: 1314.08 L: 1306.54

XAU/USD Technical

S3 S2 S1 R1 R2 R3
1260 1273 1300 1315 1330 1350
Click to enlarge
  • XAU/USD is showing little movement in Tuesday trade.
  • 1300 continues in a support role. This is followed by a support level at 1273.
  • 1315 is the first line of resistance. It is a weak line and could see pressure during the day. There is stronger resistance at 1330.
  • Current range: 1300 to 1315

Further levels in both directions:

  • Below: 1300, 1273, 1260, 1252 and 1241
  • Above: 1315, 1330, 1350 and 1388

OANDA's Open Positions Ratio

XAU/USD ratio is almost unchanged in Tuesday trade. This is consistent with the pair's current movement, as gold has shown little movement. The ratio has a substantial majority of long positions, reflecting a strong trader bias towards gold moving upwards against the US dollar.

Gold has shown little activity on Tuesday. XAU/USD is steady in the European session.

XAU/USD Fundamentals

  • 12:30 US Trade Balance. Estimate -40.1B.
  • 14:00 US IBD/TIPP Economic Optimism. Estimate 47.6 points.
  • 21:30 US FOMC Member Jeremy Stein Speaks.

*Key releases are highlighted in bold

*All release times are GMT

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.