Gold trading outlook: futures lower ahead of FOMC decisions; US data, Iraq

Gold futures were lower during early trade in Europe today. Traders await key announcements after the Feds meeting today. The US posted some mixed data yesterday, with improving consumer inflation and a sharp fall for housing figures. Iraq still offers some support, with militants advancing in OPECs second-top oil producer.

Gold futures for delivery in August traded for $1 266.9 per troy ounce at 8:14 GMT on the COMEX in New York today, down 0.40%. Daily high and low stood at $1 272.3 and $1 266.5 per troy ounce, respectively. Yesterday the contract dropped 0.26%, after a 0.9% gain on Monday.

Meanwhile, silver contracts for July stood at $19.680 per troy ounce, for a drop of 0.26%. Daily high and low were at $19.765 and $19.665 per troy ounce, respectively. Yesterday the contract added 0.09%, after a 0.31% increase on Monday, for a monthly peak of $19.875 per troy ounce.

“Trading is expected to be muted before the FOMC meeting,” Lv Jie, analyst at Cinda Futures Co., China, said for Bloomberg. “Until there’s a sense that things in Iraq or Ukraine are getting a lot worse, haven demand will also be contained.”

US meeting

The US Federal Open Market Committee (FOMC) will conclude its meeting today, and will reveal decisions on interest rates and Federal 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.

The US posted key economic data yesterday. CPI for May was recorded at 2.1% annual growth and 0.4% month-on-month, while core CPI, which exclude food and energy, added 0.3% on a monthly basis and 2.0% year-on-year. CPI is a leading indicator for consumer spending, which generates about 80% of US GDP, and is the primary gauge used by the Fed for its monetary policy decisions.

US housing data was also released yesterday. The annualized rate of housing starts dropped 6.5% on a monthly basis in May and stand at 1.001 million, while building permits’ annualized rate declined by 6.4% on a monthly basis to 0.991 million. The real estate sector accounts for about 13% of US GDP.

Stocks

US stocks gained during Tuesdays Wall Street session, and are once again nearing record highs. S&P 500 added 0.22%, Dow 30 was up by 0.16% and Nasdaq 100 increased by 0.04%. DJ Euro Stoxx 50 added 0.21% yesterday, and by 8:06 GMT today was further up by 0.17%.

Meanwhile, assets at the SPDR Gold Trust – the largest gold-backed exchange-traded fund, were almost unchanged yesterday at 782.62 tons, after dropping 4.19 tons on Monday. The fund is nearing multi-year lows, amid a recovering US economy.

Iraq

Sunni militants, led by a group of extremists called ISIS (Islamic State in Iraq and the Levant), continue to advance towards the Iraqi capital of Baghdad. Bitter fighting was reported some 60km north of the city, while more battles were fought to the west of Baghdad. Citizens have been reported to be stockpiling food and water, the BBC reported

Meanwhile, the Iraqi military commander of the province of Nineveh, which first came under attack from the Islamist, was dismissed by the Iraqi government, for failing to stop the militants from taking key cities. The city of Tikrit was said to house some 30 000-strong garrison of government troops, who fled when attacked by only several hundred insurgents.

Authorities have assured the populace that the rebels will not take Baghdad, and that food supplies are not in danger. They have also expressed confidence in a planned rapid counteroffensive. Also, they reinstated that the southern oilfields, which account for 90% of Iraqi oil output, were completely safe.

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 $1 277.7, the contract will probably continue up to test $1 283.3. In case the second key resistance is broken, the precious metal will likely attempt to advance to $1 293.2.

If the contract manages to breach the first key support at $1 262.2, it will probably continue to slide and test $1 252.3. With this second key support broken, the movement to the downside may extend to $1 246.7.

Meanwhile, silver futures for July will see their first resistance level at $19.860. If it is breached, the contract will meet next resistance at $19.897, and then the third level at $20.200.

Silver will find its first support point at $19.520. Should it be breached, the second level of support is estimated at $19.307 and the third at $19.180.