Gold trading outlook: futures hold near six-week high on India demand, global economy

Gold traded near a six-week peak, underpinned by strong physical demand from world No2 consumer India, and drew further support amid fears of a global economic slowdown. However, a stronger dollar, boosted by upbeat US data, kept the metals upward movement checked.

Comex gold for delivery in December traded at $1 247.8 per troy ounce at 8:42 GMT, down 0.31% on the day. Prices varied in a daily range of $1 250.2-$1 246.3. The precious metal surged to a six-week peak of $1 255.6 on Tuesday and settled the day 0.56% higher at $1 251.7, the highest since September 8th.

Gold drew support by heightened physical demand from India, the worlds second-biggest consumer. The Asian country celebrated Dhanteras, the biggest gold-buying festival, yesterday, while Diwali, the festival of lights, is celebrated on October 23rd. According to estimates by the All India Gems & Jewellery Trade Federation, Indias gold imports probably jumped to 95 tons last months from 15-20 tons a year earlier.

The metal also remained supported by worries the global economy is slowing after China reported an annualized 7.3% Q3 GDP growth, below the officially targeted 7.5% expansion rate. Although the reading beat analysts projections for a drop to 7.2%, it still prompted speculations the government must introduce additional stimulus measures to safeguard its growth aim and prevent a sharper drop in activity.

The metal rebounded from the lowest level this year hit in early-October after US policy makers voiced their concern that a stalling global economy and a stronger dollar may impede the US economy’s recovery, and kept an overall dovish tone at FOMC’s September meeting.

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

Last weeks upbeat industrial production, initial jobless claims and housing starts in the US, coupled with yesterdays better-than-expected September existing homes sales fueled confidence among investors the US economic recovery remains robust and on track.

The US dollar index, which measures the greenbacks performance against a basket of six major peers, rose to a 1-week high on Wednesday. The December contract stood at 85.625 at 8:41 GMT, up 0.26% on the day, having risen to 85.665 earlier in the session, the highest since October 15th. The US currency gauge rose 0.43% on Tuesday to 85.404, the highest settlement in over a week.

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 Fed’s 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, remained unchanged on Tuesday after they fell 1.18% to 751.96 tons on Monday, the lowest since November 2008.

Pivot support and resistance levels

According to Binary Tribune’s daily analysis, December gold’s central pivot point on the Comex stands at $1 251.0. If the contract breaks its first resistance level at $1 256.3, next barrier will be at $1 260.9. In case the second key resistance is broken, the precious metal may attempt to advance to $1 266.2.

If the contract manages to breach the first key support at $1 246.4, it may come to test $1 241.1. With this second key support broken, movement to the downside may extend to $1 236.5.

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