Gold prices have been hovering near a four-month high, while weakness in the US dollar, and US bond yields have been supportive for gold.
The dollar stood near its lowest levels in three months against the positive moves in the euro and other currencies. Also, the US 10-year bond yields corrected from a recent high, which also supported precious metals.
At time of writing, gold prices were trading near $1,877.95, sharply higher from the recent low of $1,673.30 registered on Mar. 8. The dollar index futures was trading below 90, sharply lower from March’s high of 93.47. The US 10-year bond yield was trading near 1.625, much lower from March’s high of 1.776.
Weakness in inflation numbers in the US and Japan are likely to weigh on gold prices. The US 10-year breakeven inflation rate on Friday fell to a 2-week low of 2.443% and Japan's Apr national CPI ex-fresh food & energy fell -0.2% y/y, weaker than expectations of -0.1% y/y.
Gold prices are likely to be negative due to strong global PMI data; manufacturing activity is expanding in the US, UK, and Eurozone.
Hawkish comments from Dallas Fed President Kaplan are likely to keep gold prices under pressure. He said that the Fed should discuss the unintended effects of its emergency tools, and he would rather talk about the taper of asset purchases sooner rather than later. Also, Philadelphia Fed President Harker said the Fed should discuss tapering its bond-purchase program "sooner rather than later."
However, dovish comments from the ECB are likely to provide support to precious metals. ECB President Lagarde said the ECB is "committed" to preserving favorable financing conditions to the Eurozone throughout the whole pandemic period, and policymakers should see through a temporary acceleration in price gains because underlying factors for sustained growth "are certainly not there."
Also, ECB Governing Council member Rehn said, "as the inflation outlook in the Eurozone remains muted, economic growth still needs to be supported by a strong monetary stimulus."
According to the CFTC Commitments of Traders report for the week ended May 18, net long for gold futures increased by 6,634 contracts to 198,889 for the week. Speculative long positions increased by 8,106 contracts, while shorts were up by 1,472 contracts.
Gold prices may trade firm while above the key support level of 10 days EMA of $1,864 and 20 days EMA of $1,842; it may find stiff resistance around $1,920.