Gold trading outlook: futures advance on safe-haven demand, Iraq worries; FOMC meeting this week

Gold futures continued to climb during early trade in Europe today. The growing conflict in Iraq has threatened a rout on commodities, as Islamist battle government troops in OPECs second-top oil producer. Elsewhere, a crucial US meeting is due on Wednesday, when policymakers will decide on monthly assets purchases and rates.

Gold futures for delivery in August traded for $1 280.6 per troy ounce at 8:47 GMT on the COMEX in New York today, up 0.51%. Daily high and low stood at $1 285.1 and $1 276.5 per troy ounce, respectively, reaching a three-week high. The contract closed for a 1.5% weekly gain on Friday.

Meanwhile, silver contracts for July stood at $19.710 per troy ounce, for a gain of 0.28%. Daily high and low were at $19.875 and $19.665 per troy ounce, respectively, reaching a monthly peak. The contract added 3% last week.

“There’s some safe haven demand” on tensions in Iraq, said David Lennox, resource analyst at Fat Prophets in Sydney, in an interview for Bloomberg. “Haven demand with the Middle East, Iraq especially, would’ve been the support that gold was looking for.”

Iraq

Iraq dominated commodities markets late last week, as an Islamist organization, linked with al-Qaeda and boasting up to 5 000 fighters, according to the BBC, launched assaults on towns and army bases across the northwestern half of the country. The group, called ISIL (Islamic State in Iraq and the Levant), is a Sunni extremist brigade, fighting against a Shia-led government in Iraq.

Iraqi authorities reported “successful counterattacks” and claimed to have retaken a number of towns over the weekend. A major counter-offensive against the militia-controlled city of Tikrit will probably take place soon, the BBC reported.

ISIL, which is composed mainly of religious extremist, is said to also be employing former Iraqi military officers and soldiers, who were loyal to the late dictator Saddam Hussein, himself a Sunni. Other than former military and extremists, some tribal leaders have also expressed their loyalties to the ISIL, while others have declared otherwise, sending troops to aid Baghdad’s military. Meanwhile, Shia clerics have announced a “Call-to-arms” for volunteers to join the fight against the Sunni-led onslaught.

On the international level, Iran and the US expressed readiness to work together, with the goal of halting the extremists’ advance in Iraq and helping the country battle the “terrorists” (Iran is the only country, other than Iraq, to be populated mostly by Shia Muslims). The US has deployed an aircraft carrier in the Gulf, as US President Barack Obama is “considering the options”, after indicating the possibility of airstrikes against the militants as a probable form of military aid.

US economy

The Federal Open Market Committee (FOMC) will meet on Wednesday, to decide on monetary stimulus and interest rate for the US, decisions of massive influence on financial markets. Experts suggest another $10bn trim of monthly assets purchases, while the interest rate will probably remain unchanged at 0.25%. Every meeting and decision of the FOMC is closely watched by investors, looking for cues as to the direction and expectations for the world’s top economy.

Ahead of the meeting, industrial production for May will be revealed today, and analysts project a 0.4% monthly growth, after -0.6% was logged in the previous month.

The key figure on CPI for May will be revealed on Tuesday, and forecasts suggest a 0.2% monthly growth, after 0.3% in April, and an unchanged 2.0% growth on an annual basis. Core CPI, which excludes the more-volatile food and energy, is expected to stand for a 0.2% monthly growth, and 1.8% year-on-year. Consumer prices are the main indicator on consumer spending, which generated about 80% of US GDP.

Stocks

US stocks reversed an earlier downtrend during Friday’s Wall Street session, and logged limited weekly losses. S&P 500 dropped 0.6% this week, Dow 30 Industrial lost about 0.9% and Nasdaq 100 was down 0.5%. Dow Jones Euro Stoxx 50, a gauge for European stocks, fell by 0.3% over the course of the week, and by 8:45 today was down further 0.46%. Fridays session was the fifteenth out of the last twenty to score gains, and stocks were at all-time highs as trading closed last Tuesday.

Meanwhile, assets at the SPDR Gold Trust – the largest gold-backed exchange-traded fund, remained at 787.08 for a ninth session on Friday. The fund has regained almost 11 tons over the past two weeks, after dropping more than 30 for the previous month, as the US economy scored improving results.

Technical view

According to Binary Tribune’s daily analysis, in case Gold August futures on the COMEX manage to breach the first resistance level at $1 277.8, the contract will probably continue up to test $1 281.6. In case the second key resistance is broken, the precious metal will likely attempt to advance to $1 285.0.

If the contract manages to breach the first key support at $1 270.6, it will probably continue to slide and test $1 267.2. With this second key support broken, the movement to the downside may extend to $1 263.4.

Meanwhile, silver futures for July will see their first resistance level at $19.760. If it is breached, the contract will meet next resistance at $19.865, and then the third level at $20.010.

Silver will find its first support point at $19.510. Should it be breached, the second level of support is estimated at $19.365 and the third at $19.260.