After a data filled week, precious metals still remain in relatively tight trading ranges, barely changed from this time last week. While we’ve still experiencing some whippy trading sessions, the ultimate outcomes have done very little to denote direction. Friday’s much anticipated US non-farms payroll data was viewed as positive on meeting market expectations. Revisions lower from last month’s pervious report perhaps tempered traders relief following a recent string of weaker economic releases. Although one piece of less negative data shouldn’t rise expectations of interest hikes happening anytime in June.
Across in China, news of further stimulus from China’s central bank cutting their one year lending rate by 25 basis points to 5.1% should have a positive flow on effect for commodities. These changes are aimed stimulating their slowing economy to reach its 7% growth targets. Expectations are that this is not the last stimulus, with further easing to follow in the coming months. Lack of commodity demand out of China certainly hasn’t gone unnoticed by the precious metals sector.
Closer to home, we’ve finally found some relief from a high NZD. Since the NZ Reserve Bank hinted it would cut interest rates if demand weakens and inflation remained low, many major banks have come out revising their interest rate forecasts. ANZ Bank is calling for interest rate cuts in both June and July, along with First NZ Capital calling for cuts. This resulted in sharp 2 cent correction in the NZD/USD. Adding fuel to calls for interest cuts, NZ employment data released late last week showed our unemployment rate for the first quarter remained at 5.8% vs expectations of a drop to 5.5%. Our rock star economy may be having Justin Bieber like fall from fame. This isn’t of course all bad, those holding Gold paid in NZD will be reaping the benefits. So noted in this report, I’ve fancied Gold in NZD terms, therefore the recent demise of NZD has seen Gold values in NZD climb 2%, while USD pricing remain stagnant.
Golds trading patterns appear to be forming a wedge, with declining highs, but with lows remain unbroken, forming progressively resilient support. This doesn’t mean that we can now assume a price floor is in place, it just highlights strong demand for Gold at the US$1150-1170 per oz. area. On the topside, we’ll need a break of US$1205 per oz. before we can feel more convinced about future higher prices. Otherwise we have a clear trading range in which we can sell into spikes around US$1200-1205 with protective stop losses close to US$1210 -1215 per oz. However, my preference is to buy on dips around US$1175-1180 per oz.
By Adam Van Sambeek, Treasury Manager