Gold trading outlook: futures swing as escalation in Ukraine fails to offset Fed tapering prospects

Gold hovered near the $1 300 mark amid reports of hasty US recovery and accelerating economic growth, alongside a reduction in Chinese demand forecasts. Losses were kept in check by fears of further escalation of tension in Ukraine.

Gold futures for settlement in June traded at $1 302.10 per ounce at 08:00 GMT, marking a 0.14% rise for the day, with highs and lows at $1 304.00 and $1 293.50 respectively. This adds to yesterdays 2.05% drop, the biggest in 16 weeks. Previously, the metal had added more than 2% over the course of 2 weeks, reaching a three-week intra-day high of $1 331.40 on Monday amid Ukraine fears.

Strong data from the US has given a strong boost to the dollar recently. Retail sales figures for March beat expectations of 0.8% growth and posted at 1.1%. Moreover, consumer inflation improved on an expected 1.4% growth to manage a 1.5% jump, closing in on the 2% target of the Federal Reserve. This boosted demand for the greenback and reduced golds safe-haven appeal.

The US Dollar Index dropped to 79.785 on Wednesday by 08:03 GMT, down 0.13% on the day, having risen for the four previous days. The June contract is up 0.3% so far this week. Strengthening of the greenback makes dollar-denominated raw materials pricier for foreign currency holders and limits their appeal as an alternative investment.

According to Reuters, Chinese demand might be on the downtrend, as reports showed that the precious metal has been tied in contracts, rather than used in production. As much as 1000 tons of the metal is locked up in financial deals, indicating lower consumption and further pushing down on gold.

Data from China confirmed fears the world’s second-largest economy cooled off in the first quarter, fueling concerns it might miss the government’s official 2014 target.

China’s National Bureau of Statistics reported early on Wednesday that the country’s Gross Domestic Product (GDP) rose by an annualized 7.4% rate in the three months through March, the slowest in six quarters. Albeit beating analysts’ expectations for a slowdown to 7.3%, the reading trailed Q4′s 7.7% growth and was below the government’s targeted 7.5% expansion. Quarter-on-quarter, the Asian economy matched projections and grew by 1.4%, below the preceding period’s 1.8% growth.

Meanwhile, supplies in the SPDR gold fund rose by 0.6 tons to reach 806.82 following a three-week downtrend in supplies. Assets rose by 1.8 tons on Monday to 806.22 tons, the first inflow the fund has seen since March 24th. It lost 41% of its assets in 2013 that wiped almost $42 billion in value. A total of 553 tons was withdrawn last year.

Ukraine

Still lingering fears of further escalation in Ukraine capped bearish concerns, with both Dmitry Medvedev and Vladimir Putin warning that the country is on the brink of civil war, the BBC reported. Fears, however, could not overcome strong data from the US and China to reverse the drop in price for gold.

Ukrainian forces began a military crackdown against pro-Russian separatists in the eastern regions of the country on Tuesday. The so-called ”anti-terrorist” operation is the central governments response to armed militants taking control of administrative and police buildings in the East. Earlier, the local parliaments of the Donetsk and Lugansk regions elected the creation of independent, sovereign states, and called for referendums on ceding from Ukraine, much like the events in the Crimea.

Thursday will see 4-side talks in Geneva, hosting senior representatives from Ukraine, Russia, the EU and US, with hopes of deescalation further pressuring demand for safe haven.

Technical view

According to Binary Tribune’s daily analysis, in case Gold June futures manage to breach the first resistance level at $1 324.33 per troy ounce, it will probably continue up to test $1 348.37. In case the second key resistance is broken, the precious metal will probably attempt to advance to $1 368.33.

If the contract manages to breach the first key support at $1 280.33, it will probably continue to slide and test $1 260.37. With this second key support broken, the movement to the downside will probably continue to $1 236.33.