Gold trading outlook: futures set for back-to-back weekly gain

Gold remained on track to post its first back-to-back weekly advance since July as global economic uncertainty sent equities falling, while sparking safe-haven demand for the precious metal, bonds and the Japanese yen. Encouraging data from the US on Thursday limited gains, but the metal remained supported not far off five-week high levels following sluggish data from Europe and China, and disappointing US retail sales.

Comex gold for delivery in December slid 0.19% by 8:18 GMT on Friday to $1 238.9 per troy ounce, having shifted in a daily range of $1 242.1-$1 237.2 an ounce. The precious metal rose for a third day this week on Wednesday, having touched a five-week high of $1 250.3, but closed 0.29% lower at $1 241.2 on Thursday. Prices are up 1.4% so far this week.

Gold recovered after falling to the lowest this year in early-October as signs of a global economic slowdown led by Europe spooked investors, sending riskier assets such as equities falling and prompting safe-haven bids.

US policy makers kept a dovish tone at FOMCs September meeting, reaffirming their pledge to keep accommodation in place until the US economy expands at a desired pace and the global economy could digest an interest rate hike. Central bankers feared that lower inflation and slowing global growth could impair the US economys recovery process.

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.

Federal Reserve Bank of St. Louis President James Bullard in turn challenged yesterday his colleagues to consider delaying plans to end Feds bond purchases at FOMCs October 28-29 meeting, which would be a change of the central banks previously outlined timetable to discontinue its QE program this month.

Mr. Bullard said in an interview: “We said the taper was data dependent. The Fed’s message should be that we are watching and we’re ready and we are willing to do things to defend our inflation target.”

Economic data

Earlier in the week, 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.

Downbeat inflation numbers from China and Europe, coupled with lower investor confidence in the single currency bloc and Germany trimming its 2014 and 2015 growth forecast were in the center of investors worries. Upbeat economic numbers from the US on Thursday, however, were found encouraging.

The Labor Department reported that the number of Americans who filed for initial unemployment benefits in the seven days through October 11th slid by 23 000 to 264 000, the least since April 2000. The four-week average of claims, which irons out weekly volatility, dropped by 4 200 to 283 500, the lowest since June 2000.

A separate report by the Federal Reserve showed that US industrial output rose by a better-than-expected 1.0% in September from a 0.2% contraction in August, driven by a surge in utilities and a rebound in manufacturing. This was the fastest pace of expansion since November 2012 and compared to analysts’ projections for a 0.4% jump.

The US dollar index, which measures the greenbacks performance against a basket of six major trading peers, headed for a second weekly loss, further retreating from a four-year high touched in early-October. The December contract stood at 85.125 at 8:18 GMT, up 0.1% on the day, after it slid 0.23% on Thursday to 85.041. The US currency gauge is down ~1% this week.

A weaker greenback makes dollar-denominated commodities cheaper for foreign currency holders and boosts their appeal as an alternative investment.

In a sign of somewhat higher investor confidence, assets of the SPDR Gold Trust, the biggest bullion-backed ETF and major gauge of investor sentiment toward gold, rebounded from the lowest since December 2008 on Thursday to 760.93 tons.

Daily pivot levels

According to Binary Tribune’s daily analysis, December gold’s central pivot point on the Comex stands at $1 240.7. If the contract breaks its first resistance level at $1 246.1, next barrier will be at $1 251.1. In case the second key resistance is broken, the precious metal may attempt to advance to $1 256.5.

If the contract manages to breach the first key support at $1 235.7, it may come to test $1 230.3. With this second key support broken, movement to the downside may extend to $1 225.3.

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