Gold trading outlook: futures add as the Fed announced it is keeping interest rate lower

Gold futures added as the dollar declined, following the Feds decision of keeping rates low for a “considerable time”. Stocks gained and are once again at record highs.

Gold futures for delivery in August traded for $1 279.9 per troy ounce at 7:52 GMT on the COMEX in New York today, up 0.57%. Daily high and low stood at $1 282.5 and $1 276.2 per troy ounce, respectively, near a 20-day peak. Yesterday the contract added 0.09%, and so far this week gold has been relatively unchanged, losing about 0.1%

Meanwhile, silver contracts for July stood at $19.895 per troy ounce, for a gain of 0.59%. Daily high and low were at $19.950 and $19.830 per troy ounce, respectively, reaching a monthly high. Yesterday the contract added 0.23%, and so far this week silver has gained 0.6%.

“Gold managed to eke out some gains in light trading after the FOMC meeting but the longer term trend is still bearish for the precious metal,” Zhang Lin, analyst at Yongan Futures Co., wrote in a note today, cited by Bloomberg.

FOMC meeting

The US Federal Open Market Committee (FOMC) announced key monetary policy decisions yesterday, after concluding its 2-day meeting. Interest rate was kept at 0.25%, while monthly assets purchases were trimmed by $10bn for the fifth straight time. Feds Chair Janet Yellen expressed the Committees views that rates are likely to stay low “for a considerable time”. Yellen emphasized on labor market weaknesses and “noisy data”, referring to improving CPI readings.

“All the evidence is that this is the weakest economic recovery on record, so she is going to tilt the committee in the direction of providing as much aid as possible for as long as it takes,” Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, said for Bloomberg.

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 cutbacks are implemented only as the economy recovers well enough.

Stocks, dollar

US stocks added on the Feds commitment to supporting the economy, and all major indices scored sizable gains. S&P 500 added 0.77% during Wednesdays Wall Street session, for the record-high closing level of 1956.99. Dow 30 was up 0.58%, while Nasdaq 100 also closed for an all-time high at 3804.61, with a daily gain of 0.62%. DJ Euro Stoxx 50 added 0.15% yesterday, and by 7:28 GMT today was further up by 0.93%.

Meanwhile, assets at the SPDR Gold Trust – the largest gold-backed exchange-traded fund, were unchanged yesterday at 782.62 tons, having dropped more than 4 tons this week. The fund is orbiting multi-year lows, amid a recovering US economy.

The US Dollar Index, which measure the greenbacks performance against six other major currencies, was pressured by the Feds firm tone on keeping rates lower for as long as necessary. The gauge dropped 0.06% yesterday, and by 7:33 GMT today was down a further 0.42% at 80.34.

Meanwhile, the euro, the dollars main competitor, added 0.30% against the dollar yesterday, and by 7:34 today was up by a further 0.21% at 1.3618 EUR/USD.

Economic figures

The US posted key economic data this week. 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 this week. 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.

Philadelphia Fed Manufacturing Index for June will be revealed today, and analysts expect a reading of 14.0, for a slight downturn after the 15.4 standing for May.

Also today, jobless claims weekly figures will be released. Initial applications for unemployment benefits for the week ended June 14 are expected to stand at 314 000, slightly less than the 317 000 for the previous week. Meanwhile, continuing claims for the week through June 7 will probably be revealed at 2.600 million, also slightly better than the previous reading of 2.614 million.

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 $1 279.1, the contract will probably continue up to test $1 285.5. In case the second key resistance is broken, the precious metal will likely attempt to advance to $1 291.8.

If the contract manages to breach the first key support at $1 266.4, it will probably continue to slide and test $1 260.1. With this second key support broken, the movement to the downside may extend to $1 253.7.

Meanwhile, silver futures for July will see their first resistance level at $19.910. If it is breached, the contract will meet next resistance at $20.043, and then the third level at $20.165.

Silver will find its first support point at $19.655. Should it be breached, the second level of support is estimated at $19.533 and the third at $19.400.