Gold futures prices moved lower on Friday after the Commerce Department released worse than expected Retail Sales data. The decline in consumer confidence along with the lack of robust retail buying in March created headwinds for gold traders.
During the first week of April the tone of economic releases changed investor’s sentiment leading many to believe that the US economy had entered a soft patch. This came as five different employment gauges reflected weakness in the job sector. The ADP private payroll report along with the Government non-farm payroll report printed number that were worse than expected. Both the ISM manufacturing and services sub-component showed the jobs were slipping and the weekly jobless claims data climbed substantially means that more applicants were looking for assistance.
The weakness in U.S. economic data generated negative sentiment, which helped gold prices gain some traction. Gold prices are generally prices in U.S. dollars, and given that the yellow metal trades like a currency, lower dollar values usually lead to higher gold prices. Gold interest rates are also moving in favor of the yellow metal. Similar to other currency pairs, gold has an interest rate curve called the GOFO curve which trades in the forward market as an interest rate differential to the U.S. dollar. This means that investors are paid more to hold gold, which makes it more attractive than holding dollars.
During the second week of April, gold faced challenges from the U.S. Retail Sales report. Retail sales dropped .6% compared to the .1% gain expected by economists. Expectations were for a soft report, give the layoffs that occurred in the retail sector during March. The March non-farm payroll report showed that the retail sector shed 24,000 jobs during March which does not bode well for the volume of retail sales.
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Technically, June futures are under significant pressure and could test weekly support levels near $1,490.
Momentum on gold prices is negative with the MACD (moving average convergence divergence index) printing near the zero index level. The spread (the 12-day moving average minus the 26-day moving average) has crossed below the 9-day moving average of the spread which generates a sell signal. The RSI (relative strength index) is printing 29, which is below the oversold trigger level.
Derivatives broker, Intertrader, currently has a spread of 1584.4-1585.3 on the price of gold with a June expiry.