Gold trading outlook: futures touch four-week high amid global growth worries

Gold rose on Monday to the highest in nearly four weeks as worries over global economic slowdown spurred safe-haven demand for the precious metal. Silver, platinum and palladium also jumped, extending last weeks advance.

Comex gold for settlement in December rose by 0.54% to $1 228.3 per troy ounce by 9:22 GMT, having earlier touched $1 238.0 an ounce, the highest since September 17th. The precious metal fell on Friday but nevertheless closed the week 2.4% higher at $1 221.7 an ounce.

Golds rise was prompted by renewed fears of a global economy slowdown which pressured down equities measured by the MSCI All-Country World Index and induced safe-haven demand. Gold is often seen as an alternative investment to riskier assets such as equities.

Fed minutes from the central banks September 16-17 meeting revealed last week that policy makers feared slowing global growth and a strong dollar posed risks to the US economy’s recovery. Central bankers decided to maintain a pledge to keep interest rates at rock bottom for a “considerable time”.

“Some participants saw the current forward guidance as appropriate in light of risk-management considerations, which suggested that it would be prudent to err on the side of patience while awaiting further evidence of sustained progress toward the committee’s goals,” Fed minutes showed.

Federal Reserve Vice Chairman Stanley Fischer said on October 11th that weaker-than-expected global growth could force the Fed to remove accommodation slower than otherwise. He said that the central bank wont raise interest rates until the US economic growth has advanced sufficiently and emerging markets could digest the interest rate hike. An extended period of rock-bottom interest rates would benefit gold as a non-interest-bearing asset, while pushing the dollar down.

The US dollar index, which measures the greenbacks performance against a basket of six major counterparts, ended a 12-week bull run on Friday. The December contract settled 0.44% higher on Friday at 86.031, but closed the week 0.9% lower. It fell 0.38% to 85.700 by 9:22 GMT on Monday.

Edward Meir, an analyst at INTL FCStone, said, cited by Bloomberg: “Gold is going to be doubly influenced by both the equity markets and the dollar over the course of the week. Both will continue to drop over the short term, offering a measure of support to prices.”

However, despite its upside prospects, gold is still broadly projected to decline in the long-term, with the Fed drawing closer to ending its Quantitative Easing program and an interest rate hike largely expected to commence at some point in 2015.

According to data by the US Commodity Futures Trading Commission, money managers trimmed net-long bullion positions in futures and options for the eight consecutive week in the seven days through October 7th.

Meanwhile, assets in the SPDR Gold Trust, the biggest bullion-backed ETF and a major gauge of investor sentiment towards the metal, fell on Friday to 759.44 tons, the lowest level since December 2008. The fund hasn’t seen an inflow since September 10th.

Pivot support and resistance levels

According to Binary Tribune’s daily analysis, December gold’s central pivot point on the COMEX stands at $1 221.7. The precious metal has already broken its three daily resistance levels at $1 225.7, $1 229.8 and $1 233.8.

If the contract reverses and manages to breach the first key support at $1 217.6, it may continue to slide and test $1 213.6. With this second key support broken, movement to the downside may extend to $1 209.5.

In weekly terms, the central pivot point stands at $1 219.6. The resistance levels are as follows: R1 – $1 236.1, R2 – $1 250.6, R3 – $1 267.1, while support will be encountered at respectively S1 – $1 205.1, S2 – $1 188.6 and S3 – $1 174.1.