Gold trading outlook: futures hit six-week high as China growth slows

Gold rose to the highest in six weeks on Tuesday as easing China economic growth refueled concerns of a slowing global economy, while upbeat data from the US backed the case of policy makers ending Feds bond-buying program later this month. Assets in the SPDR Gold Trust fell to a new multi-year low.

Comex gold for delivery in December rose to a six-week high of $1 254.1 per ounce and traded at $1 252.0 at 8:46 GMT, up 0.59% on the day. The metal snapped two days of losses on Monday, settling 0.46% higher at $1 244.7. Prices are up ~1% so far this week.

Gold extended its advance after Chinas National Bureau of Statistics reported that the Asian economy grew by an annualized 7.3% in the third quarter, the lowest since Q1 2009, compared to 7.5% in the second quarter. Although the reading beat broad analyst expectations for a slowdown to 7.2%, it still sparked expectations the government will introduce additional stimulus measures to spur growth.

On a quarterly basis, the world’s second-biggest economy expanded by a seasonally-adjusted 1.9% from the previous three months, topping analysts’ estimates for 1.8%. Retail sales rose by 11.6% from a year earlier in September, slightly below economists’ consensus forecast for 11.8%.

Another weak point was fixed-asset investment excluding rural households which rose an annualized 16.1% in the first nine months of the year, the slowest since 2001. This trailed projections for 16.3% and the January-August’s growth of 16.5%.

On the bright side, China’s industrial production expanded by 8.0% in September from a year earlier, exceeding analysts’ projections for a 7.5% growth from the preceding month’s 6.9% annualized expansion which was the slowest in more than five years.

Gold posted its first back-to-back weekly gain last week since July after US policy makers voiced their concern that a stalling global economy and a stronger dollar may impede the US economys recovery, and kept an overall dovish tone at FOMCs September meeting.

Stimulus

However, despite the recent ambivalence regarding Feds timetable to raise interest rates, long-term sentiment on gold remained bearish. Policy makers are broadly expected to end Feds Quantitative Easing program at their October 28-29 meeting, supported by last weeks upbeat economic data, while an interest rate hike is anticipated to come at some point in 2015.

Meanwhile, the European Central Bank has embarked on a loosening monetary policy, which will weaken the euro and boost the dollar, further dragging on gold.

While St. Louis Fed President James Bullard challenged last week his colleagues to delay the conclusion of Feds bond-buying program in order to battle a drop in inflation, Dallas Fed President Richard Fisher said yesterday he continued to be hawkish, but wanted to be “sensible”.

Assets in the SPDR Gold Trust, the biggest bullion-backed ETP and a proxy for investor sentiment towards gold, fell by 1.18% to 751.96 tons on Monday, the lowest since November 2008.

Although the drop in the fund can undermine sentiment in the gold markets, strong physical demand in Asia is expected to provide some support. The worlds second-biggest gold consumer, India, celebrates Dhanteras on Tuesday and Diwali later in the week, while the countrys central bank said it wont tighten gold import rules further.

Market players now eyed upcoming key economic data from the US in the week, including housing numbers and consumer inflation, for further clues of how the US economy is faring.

The US dollar index for settlement in December stood at 84.980 at 8:46 GMT, down 0.07% on the day, having shifted in a daily range of 85.130-84.795. The US currency gauge slid 0.2% on Monday to 85.038.

Elsewhere on the precious metals market, silver for delivery in December added 0.64% to $17.465 per troy ounce by 8:49 GMT, gaining for a second day, while platinum January futures rose for a third day and stood at $1 274.1, up 0.52%. Palladium for delivery in December added 0.16% to $763.50 an ounce, also its third day of gains.

Pivot points

According to Binary Tribune’s daily analysis, December gold’s central pivot point on the Comex stands at $1 243.0. If the contract breaks its first resistance level at $1 251.0, next barrier will be at $1 257.4. In case the second key resistance is broken, the precious metal may attempt to advance to $1 265.4.

If the contract manages to breach the first key support at $1 236.6, it may come to test $1 228.6. With this second key support broken, movement to the downside may extend to $1 222.2.