Weak Manufacturing PMI Data Drives Gold Higher, Crude Lower; Natural Gas Traders Focused on Weather

It was a pretty uneventful week in the gold, crude oil and natural gas markets until Thursday when a pair of reports changed the short-term tone. For gold and crude oil, it was a weaker-than-expected U.S. manufacturing PMI report. The price action driving natural gas was dictated by the weekly-storage report.

Gold

Gold closed higher last week as aggressive buyers may have found value inside a longer-term retracement zone at $1280.80 to $1261.70. Furthermore, buyers came in at $1274.60 as they sought to defend the previous main bottom at $1273.20. It wasn’t much of a reaction from a historical standpoint, but it was enough to produce a small gain for the week.

Last week, August Comex gold settled at $1289.20, up $7.80 or +0.61%.

The higher close in gold came about as Treasury yields fell to a multi-month low, the U.S. Dollar closed lower after hitting a multi-year high and the Dow settled lower for the fifth straight week.

Gold was set to close lower for the week until the U.S. Flash Manufacturing PMI report for May came in lower than expected. The report was the latest sign that the trade war may be slowing the economy.

Gold traders may have started betting that a slowdown in the U.S. economy will lead to a Fed rate cut. The dollar will weaken further if rates are cut. This should make gold a more desirable asset.

Crude Oil

U.S. West Texas and international-benchmark crude oil have been supported all year by OPEC-led production cuts. So far, the strategy has worked with supply tightening and prices firming. Additional support has been provided by U.S. sanctions against Venezuela and Iran, a periodic buying sprees due to worries over supply disruptions.

Last week, July WTI crude oil settled at $58.63, down $4.29 or -6.82% and August Brent crude oil finished at $67.47, down $3.79 or -5.62%.

The weakness in crude oil started the week-ending April 26 when traders became concerned about excess supply hitting the market after the U.S. announced additional sanctions against Iran. For nearly a month, traders seemed to be content with holding prices in a range until May 23 when demand concerns drove weak longs out of the market.

On Thursday, May 23, financial data released by IHS market showed U.S. manufacturer growth hit a multiyear low in May. This raised concerns about a slowdown in the U.S. economy, which would likely mean lower demand for crude oil.

Natural Gas

Natural gas closed lower for the week, but the price action late in the week suggests buyers may have shifted their interest to a weather pattern that indicates warmer temperatures for early June.

Last week, July natural gas settled at $2.611, down $0.053 or -1.99%.

The market posted a potentially bullish closing price reversal bottom on Thursday after a successful test of a pair of former bottoms at $2.550 and $2.534. Furthermore, a weekly inventory build on the low side of estimates helped provide some support, but this is old news. The real focus for traders is the EIA report for June 6.

According to NatGasWeather, models are already showing added demand and early EIA Weekly Storage Report estimates have been reduced by 24 Bcf for the week-ending June 6.