Gold trading outlook: futures hover near 5-week high on economic uncertainty

Gold hovered near a five-week high reached yesterday as downbeat data from the US, Europe and China sparked new fears of an economic slowdown, forcing investors to seek safe haven and sending equities and the dollar falling. Silver, platinum and palladium marked minor daily losses.

Comex gold for settlement in December traded 0.43% lower at $1 239.5 per troy ounce at 8:42 GMT. Prices held in a daily range between $1 245.6, close to yesterdays five-week high of $1 250.3 per ounce, and days low of $1 237.7. The contract rose by 0.85% to $1 244.8 on Wednesday, its third straight daily advance.

Gold rebounded from this years low hit on October 6th after minutes from FOMCs September meeting showed policy makers kept a dovish stance, which sent the dollar index falling from a four-year high. This weeks downbeat data from Europe, China and the US further backed the case of a later interest rate hike, rather than otherwise.

The US dollar index fell sharply on Wednesday after data by the Department of Commerce showed that retail sales plunged 0.3% last month after adding 0.6% in August. This was the poorest performance since January and trailed analysts’s preliminary estimates for a 0.1% decline. Core retail sales, which exclude the volatile automobile sales, slid 0.2%, the most since March 2013, confounding projections and the preceding month’s 0.3% jump.

A separate report by the Labor Department showed that producer price inflation contracted by 0.1% on a monthly basis in September after remaining flat a month earlier, defying analysts projections for a 0.1% jump. Year-on-year, the Producer Price Index marked a 1.6% rise, trailing projections and the preceding month’s 1.8% gain. Core PPI also underperformed analysts’ anticipations.

The US dollar index for settlement in December fell by 0.17% to 85.095 by 8:42 GMT, having shifted in a daily range of 85.235-84.865. The contract slid to 84.525 yesterday, the lowest since mid-September, and settled the day 0.8% lower at 85.241.

Earlier in the day, China’s National Bureau of Statistics reported that consumer prices rose by 0.5% in September from a month earlier, beating projections for a 0.4% gain. However, year-on-year CPI fell to a five-year low of 1.6%, trailing the preceding month’s 2.0% jump and slightly below economists’ 1.7% projection. Producer prices fell for the 31st consecutive month, down 1.8% in September from a year earlier.

Tetsu Emori, a senior fund manager at Astmax Asset Management Inc. in Tokyo, said for Bloomberg: “The inflation number is very, very low. It seems the demand side is much weaker than we expected.”

Sluggish data from Europe, coupled with Germany trimming its growth forecasts for 2014 and 2015 also refueled concerns over global economic growth, prompting increased safe-haven bids.

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 won’t 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.

Long-term sentiment toward gold, however, remains bearish as broad market expectations still called for an interest rate hike in the US to commence at some point in 2015, leaving gains in the precious metal in check.

Assets in the SPDR Gold Trust, the biggest bullion-backed ETF and a major gauge of investor sentiment towards the metal, fell to 759.14 tons on Wednesday, the lowest since December 2008.

Pivot levels

According to Binary Tribune’s daily analysis, December gold’s central pivot point on the Comex stands at $1 239.0. If the contract breaks its first resistance level at $1 256.1, next barrier will be at $1 267.3. In case the second key resistance is broken, the precious metal may attempt to advance to $1 284.4.

If the contract manages to breach the first key support at $1 227.8, it may come to test $1 210.7. With this second key support broken, movement to the downside may extend to $1 199.5.

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