MTS Help Center

·         Gold prices rose on Tuesday, but gains were limited as traders weighed a buoyant dollar against a deepening political crisis in Italy that provoked a second day of heavy selling on European financial markets.

·         Gold prices hovered around the psychologically important $1,300 level as earlier losses on dollar strength were offset somewhat by rising safe-haven demand following an uptick in geopolitical uncertainty.

 

Gold prices recovered from a session low of $1,292.90 to trade roughly unchanged as traders sought safe-haven demand amid rising political uncertainty in Italy and growing U.S.-China trade tensions

 

·         Italy faces the prospect of fresh elections, which could deliver a deeply Eurosceptic government, threatening the future of Eurozone, after proposed prime minister Giuseppe Conte abandoned his mandate to form a government on May 27.

 

Investors feared fresh election could strengthen the country’s Eurosceptic parties even further, threatening the country’s role in the European Union.

 

·         Italy's president set the country on a path to early elections on Monday, appointing a former International Monetary Fund official as interim prime minister with the task of planning for snap polls and passing the next budget.

·         Investors fear repeat elections - which could take place as soon as August - might serve as a quasi-referendum on Italy's role in the European Union and euro zone and strengthen the country's euroskeptic parties even further.          

  

·         Gold, seen as a safe haven, often gains from political turmoil. But keeping the metal's upside in check, the events in Italy pushed the dollar to a 10-month high versus the euro, making dollar-priced gold costlier for non-U.S. investors.

·         Spot gold gained 0.18 percent at $1,300.01 per ounce by 1:36 p.m. EDT (1736 GMT), earlier hitting a five-day low of $1,293.40, while U.S. gold futures for June delivery settled down $4.70, or 0.4 percent, at $1,299 per ounce.

·         Markets are approaching a massive risk-off event, said Shree Kargutkar, vice president and portfolio manager at Sprott Asset Management.

 

"Traders have begun buying the U.S. dollar versus the euro, sterling, as well as (emerging market) currencies, which explains why the U.S. dollar has been rising," he said. "Gold has been behaving exceptionally well when measured across various major currencies and it continues to maintain an uptrend against the U.S. dollar as well."

·         Short-dated Italian bond yields, a gauge of political risk, soared to their highest since late 2013 in their biggest move in 26 years, weighing on gold.            

 

Adding to uncertainty in Europe, Spanish Prime Minister Mariano Rajoy will face a vote of confidence on Friday.

 

Elsewhere, markets are awaiting U.S. inflation data due this week that could provide clues to future interest rate increases ahead of the June Federal Reserve policy meeting.

·         "Beyond politics, we still see the U.S. rate cycle and U.S. dollar in the driving seat for gold. This should keep a lid on prices for now and supports our short-term neutral view," Julius Baer analyst Carsten Menke said in a note.

·         Gold continues to be caught in a series of crosswinds. Financial risks in Europe continue to grow as political uncertainties in Italy and Spain dominate the headlines. The euro remains under heavy selling pressure, as traders perceive the ECB may delay plans to unwind their quantitative easing policy, as the Fed continues to tighten. Elections in Italy are likely to be called for late summer or early fall and in Spain a non-confidence vote may happen as early as Friday.

·         The growing populist movements in Europe may once again bring into focus the viability of an EU membership with younger voters. Gold buying has picked up in Europe over the past few weeks, as the metal has appreciated in euro terms but the trend remains conflicted in North America.

·         The on-again North Korean summit, the strengthening dollar and yield differentials continue to be headwinds for gold prices in U.S. dollars. The contagion risk to the U.S. financial system from current events in Europe remains slight in the short term but has the potential of being disruptive of the Italian and Spanish votes become a referendum on the EU. We continue to advise holding a percentage of the portfolio in gold. For traders, the whip-saw action remains challenging.

 

·         The momentum indicators are neutral. Technically, we need a break above the $1,307 level and support sets up initially at $1,292 and then again at $1,287.

 

·         Rising geopolitical uncertainty, however, has failed to stop money managers from trimming their bets on gold for a second-straight week, according to data from the Commodity Futures Trading Commission on Friday.

 

CFTC COT data showed money managers reduced their net long positions in gold futures to 91,000 lots from 92,400 lots for the week ended May 23.

 

·         Spot silver  lost 0.5 percent at $16.38 an ounce, earlier hitting $16.28, an eight-day low.

·         Platinum gained 0.4 percent at $904.90 an ounce and palladium declined 1.1 percent at $975.75.

Reference: Reuters, Kitco, Investing