Gold trading outlook: prices headed for sizable weekly drop

Gold futures were trading slightly higher this morning in Europe, after sliding on upbeat US data yesterday. Investors now eye upcoming speeches by US and European monetary policy chiefs, as interest rates are on the agenda.

Gold futures for December delivery traded at $1 281.3 per troy ounce, up 0.46%, at 6:18 GMT on the Comex in New York. Prices ranged from $1 277.2 to $1 277.2 per troy ounce. The contract dropped 1.53% on Thursday, reaching a two-month low of $1 273.4, and is headed for a ~1.9% weekly drop.

Silver for September delivery stood for a 0.50% daily gain at $19.515 per troy ounce, while palladium was up 0.52% at $883.10. October platinum was up 0.30% at $1 425.55.

“Investors continue to adjust their holdings of gold lower as the improving U.S. macroeconomic environment drives expectations that interest rates will soon rise,” Zhu Runyu, analyst at CITICS Futures Co., a unit of China’s biggest listed brokerage, said for Bloomberg.

Economic data, Fed minutes

The US macroeconomic picture did indeed further brighten yesterday, with a number of gauges logging above expectations. Existing home sales increased more than forecast in July, and so did the Philly Fed manufacturing index, while jobless claims were fewer.

The upbeat data supported an earlier boost for dollar bulls, as minutes from the Feds July meeting were released on Wednesday, revealing a more hawkish stance by some policy makers, who debated whether a rate hike should be introduced earlier than previously expected. Officials agreed that further positive data was needed before such a decision be taken, though the hint of hike hit gold.

The Fed decided to keep the US benchmark interest rate unchanged at 0.25% at its July meeting. A higher borrowing rate would increase the value of the dollar, pressuring gold.

The US Dollar Index, which measures the greenback’s strength against other major currencies, reached a one-year high of 82.42 yesterday, after adding ~1% over the previous four sessions. By 7:07 GMT today the gauge was down 0.06% and headed for a ~0.8% weekly gain.

“We do expect rates to rise and the dollar to strengthen, and thats not a conducive background for gold,” Mohan Mandrekar, an analyst at Bessemer Trust, which has $1.2 billion invested in commodities, said for The Wall Street Journal.

Since gold, like many other commodities, is mostly traded in dollars, the value of the US currency plays a major role in the metal’s investment appeal, with a stronger dollar lifting the price of gold to foreign currencies and vice versa.

Investors now eye Fed Chair Yellens speech later today at a central banks summit in the US, for cues as to the future rate hike and its time-frame outlook.

Also at the summit is European Central Bank President Mario Draghi, who is expected to comment on the poor readings of the EU economy and ECBs stance on monetary easing and accommodation.

Eurozone

The Eurozone posted mixed, but generally downbeat data yesterday. Manufacturing PMI was logged below expectations, but still above the 50 threshold, which means an expansion of the sector, with Germany once again offsetting a significant contraction in France. Services were relatively better, with both German and French services expanding more quickly than expected, while Bloc-wide expansion was unchanged, though still significant. Meanwhile, the preliminary consumer confidence figure was lower than forecast at the lowest level since February.

The euro, nonetheless, gained to bounce off a one-year low against the US dollar, also reached yesterday.

Since the two currencies share a near-absolute opposite correlation, a drop for the euro directly translates into a stronger dollar and lower prices for gold, and vice versa.

Elsewhere, the conflicts in Ukraine and Gaza were relatively quiet on Thursday, easing safe haven demand and pressuring gold.

Ukraine, Gaza

Fighting in Ukraine was subdued yesterday, as focus shifted towards the controversial Russian aid convoy, which was suspected of carrying military provisions for pro-Russian separatists in eastern Ukraine, who have battled government forces for four months now.

Earlier today, the International Red Cross said Ukrainian officials were inspecting the cargo and the convoy should be “ready to roll tomorrow”, the BBC reported.

Battles in eastern Ukraine left at least 34 civilians dead on Tuesday alone, bringing the estimated death toll to over 2 100, while a further 5 400 people were injured.

Elsewhere, yesterday Israeli PM Benjamin Netanyahu vowed to see the military campaign in Gaza through to its end and “with all means necessary”, as Hamas-fired rockets continued landing in Israel on Wednesday.

The latest exchanges of fire between Hamas, which controls Gaza, and Israel come after peace talks brokered by Egypt crumbled. The principal demand by Israel that Gaza must demilitarize is dismissed by Hamas, while Israel refuses to ease the blockade on the Palestinian enclave and demands it has control over its borders in any case.

The conflict in Gaza has claimed more than 2 000 Palestinian lives, mostly civilians, and 66 Israelis since flaring back to life some six weeks ago.

“If you have an increase in the geopolitical concerns or a decline in the equity markets, gold should do really well because its a flight-to-quality asset and its really cheap,” Nicholas Johnson, co-portfolio manager at the $25bn Pimco CommodityPlus Strategy Fund, said for The Wall Street Journal.

Assets at the SPDR Gold Trust, the largest exchange-traded gold fund, were unchanged on Thursday after adding ~1 ton on Wednesday, reaching the highest level in a month and logging the fourth straight day of gains. Increasing volumes at the fund signal higher investor interest in gold.

Meanwhile, US stocks logged another session of sizable gains, with S&P 500 and Nasdaq 100 logging record values, as stocks are headed for ~1.5%-2% weekly gain.

Technical support and resistance levels

According to Binary Tribune’s daily analysis, December gold’s central pivot point on the COMEX stands at $1 280.3. In case futures manage to breach the first resistance level at $1 287.1, the contract will probably continue up to test $1 298.9. In case the second key resistance is broken, the precious metal will likely attempt to advance to $1 205.7.

If the contract manages to breach the first key support at $1 268.5, it will probably continue to slide and test $1 261.7. With this second key support broken, the movement to the downside may extend to $1 249.9.