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David Becker

Gold prices continued to break out on Monday as the dollar eased in tandem with US yields. Concern over the decline in global economic growth is weighing on riskier assets, and gold is providing a safe haven refuge. The announcement at the tail end of last week that President Trump was planning to levy a 5% tariff on all Mexican imports as weighed on market sentiment and helped buoy gold prices. If Trump changes his mind and tariffs do not go through, riskier assets will rebound and gold prices will slump. Softer than expected US ISM manufacturing came in softer than expected putting downward pressure in US yields.

Technical Analysis

Gold prices surged for a second consecutive trading session, pusing up against resistance near the March highs at 1,324. A break of this level would lead to a test of the 2019 highs near 1,347. Medium term momentum has turned positive as the MACD (moving average convergence divergence) index recently generated a crossover buy signal. This occur as the MACD line (the 12-day moving average minus the 26-day moving average) crosses above the MACD signal line (the 9-day moving average of the MACD line). The MACD histogram is printing in the black with an upward sloping trajectory which points to higher prices. The fast stochastic has surged higher reflecting short term accelerating positive momentum. The current reading on the fast stochastic is 83, which is above the overbought trigger level of 80 which could foreshadow a correction.

Manufacturing in the US slumped to its lowest level in 30-months. The ISM manufacturing index fell to 52.1 for May, compared to expectations for 53. That was the lowest reading since October 2016. The biggest detractor in supplier deliveries, which slumped 2.6% to 52, and inventories, which declined 2% to 50.9. Construction spending also disappointed, with a flat reading compared to expectations for a 0.4% growth in April.

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