Gold trading outlook: futures drop ahead of Fed meeting, US data; Iraq support

Gold futures slid during trade in Europe today, ahead of key US economic data. The US monetary policy makers will meet tomorrow, in a highly anticipated and followed event, which evaluates and sets the direction and trends in the US economy.

Gold futures for delivery in August traded for $1 266.9 per troy ounce at 8:30 GMT on the COMEX in New York today, down 0.66%. Daily high and low stood at $1 273.5 and $1 262.8 per troy ounce, respectively. Yesterday the contract added 0.09%, reaching a three-week high at $1 285.1 per ounce, after a 1.5% weekly gain was logged on Friday.

Meanwhile, silver contracts for July stood at $19.620 per troy ounce, for a drop of 0.48%. Daily high and low were at $19.690 and $19.520 per troy ounce, respectively. Yesterday the contract gained 0.35%, for a monthly peak of $19.875 per troy ounce, after a further 3% increase last week.

“The Fed is back in focus today,” Xia Yingying, analyst at Nanhua Futures Co., said for Bloomberg. “Iraq and Ukraine continue to offer background support.”

US economy

The US will post several key indicators today. Foremost, the key CPI figure for May will be revealed today, and analysts expect a standing of 0.2% growth on a monthly basis, after 0.3% in April, and an unchanged 2.0% annual CPI for the month of May. CPI is a leading indicator for consumer spending, which generates about 80% of US GDP.

The reading on the annual CPI is also a main indicator, used by the Federal Reserve to gauge the direction of the economy, and therefore make adjustments to monetary policy. As previously indicated, the CPI target for the Fed is 2.0% on a yearly basis, and it acts towards it.

The Federal Open Market Committee (FOMC), which makes the decisions on policies, will meet tomorrow. On the agenda are the key decisions on interest rates and on monthly assets purchases. Experts forecast another $10bn trim to purchases, while the main interest rate is expected to remain unchanged at 0.25%.

FOMC’s decisions have a significant impact on financial markets, as rates dictate short-term dollar valuation trends. Also, the US stimulus program, which buys assets worth tens of billions of dollars each month, has been a sizable support to the economy, and a cutback would mean less “easy” business. However, the cutback would be implemented only if the economy has been recovering well, and there are indications that it has been, given a 2.0% annual CPI for two months in a row.

Later today, the US will also post housing data for May. Building permits are projected to stand for -0.1% on a monthly basis at 1.050 million, the highest reading since July 2008. Meanwhile, housing starts have probably declined by 3.7% since April, for a reading of 1.034 million, after a 13.2% monthly growth was logged the previous month. The real estate sector accounts for about 13% of US GDP.

Stocks

US stocks were relatively unchanged on Mondays Wall Street sessions, with all three major indices scoring slightly higher. S&P 500 added 0.08%, Dow 30 was up by 0.03% and Nasdaq 100 increased by 0.12%. DJ Euro Stoxx 50 dropped 0.53% yesterday, and by 8:19 GMT today was up 0.44%.

Meanwhile, assets at the SPDR Gold Trust – the largest gold-backed exchange-traded fund, dropped 4.19 tons yesterday, for a standing of 782.88 tons. The fund is nearing multi-year lows, amid a recovering US economy.

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 and some 250 military personnel to reinforce security for embassy and diplomatic staff.

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 $1 283.4, the contract will probably continue up to test $1 291.6. In case the second key resistance is broken, the precious metal will likely attempt to advance to $1 298.0.

If the contract manages to breach the first key support at $1 268.8, it will probably continue to slide and test $1 262.4. With this second key support broken, the movement to the downside may extend to $1 254.2.

Meanwhile, silver futures for July will see their first resistance level at $19.870. If it is breached, the contract will meet next resistance at $20.025, and then the third level at $20.175.

Silver will find its first support point at $19.565. Should it be breached, the second level of support is estimated at $19.415 and the third at $19.260.