Looking to the Futures

Gold futures (/GC, currently set for August delivery) lost $137.70 to close at $4,365.30 on Friday. That 3% drop was the largest decline since March. A blockbuster nonfarm payrolls report led to big selloffs in equities, treasuries and precious metals.

As for that jobs report, the 172k increase in May more than doubled expectations for a gain of 85k. It was the third consecutive upside surprise, following gains of 178k in March and 115k in April. While those earlier reports didn’t move the needle as much, Friday’s report also contained upward revisions for both March (214k, +36k) and April (179k, +64k).

Good news for the employment situation was bad news for asset prices, as the jobs numbers dashed hopes for a Fed funds rate cut in the near term. The CME FedWatch tool has odds of a cut at the June meeting at less than 2%. Looking ahead, rates traders have chances of lower rates at the end of the year below 1%, with 2-in-3 odds of rates increasing by year end.

The changes in rate expectations put pressure on gold in several ways. Treasury yields climbed on the news, making the alternative safe haven more attractive. The yield on the 10year T-note (TNX:CGI) rose nine basis points to cross over 4.5%. The dollar index also jumped, gaining 1% and crossing over 100 for the first time since April.

Healthy employment data may combine with sticky inflation data to put further pressure on gold. Energy prices have pushed up expectations for today’s Consumer Price Index report for May. The announcement is expected to show an increase of 0.5% from the previous month and 4.2% year over year. Such an increase would be the highest in over three years. A big part of the forecasts is driven by energy prices, with crude up over 50% year-to-date. Core inflation, which excludes food and energy prices, is expected to rise 0.3% from April and 2.9% year over year, which would be the highest since October. Also in energy prices, crude oil inventories are also coming out this morning. Analysts expect a 5.1M barrel draw. If that comes to pass, it would lead to the lowest level since the war began, coming just as the summer travel season revs up.

While domestic numbers may not be supportive of gold prices, keep in mind that it is a global commodity. Support has come from central bank purchases this year. For the first quarter of the year, gold purchases totaled 244 metric tons. That represents an increase of 17% from the previous quarter. April saw further net buying of 19 metric tons. Central bank purchases are expected to make up approximately 20% of gold demand for the year.

The 1-year daily chart for gold shows a run-up that started late last summer. That 5-month run saw gold gain 2,100 points or 60% to an all-time high in late January. Following the peak it dropped by 21% over the next three trading days before consolidating around $5,000. Following a few months of choppy trading it has been trending lower over the past six weeks. The 50-day SMA has been trending downward since March while the 9- and 20-day SMAs have touched a few times since then. The equivalent exponential moving averages (EMAs, not shown) are all lower than the SMAs. The relative strength index just broke into oversold territory, which could lead to some relief from the selloff. The DMI shows a negative bias with notable trend strength above 25. That follows a bearish crossover in March.

Core CPI 8:30 AM ET

CPI 8:30 AM ET

EIA Crude Oil Inventories 10:30 AM ET

MBA Mortgage Applications Index 7:00 AM ET

Treasury Budget 2:00 PM ET

New futures products are available to trade with a futures-approved account on all thinkorswim platforms: 

• Ripple (/XRP)
• Micro Ripple (/MXP)
• 100 OZ Silver (/SIC)
• 1 OZ Gold (/1OZ)
• Solana (/SOL)
• Micro Solana (/MSL)

Visit the Schwab.com Futures Markets page to explore the wide variety of futures contracts available for trading through Charles Schwab Futures and Forex LLC.