Gold trading outlook: futures hit 4-year low as dollar rallies, silver plunges

Gold slid to the lowest since mid-2010 as the US dollar raced ahead, supported by a weaker yen, better-than-expected US economy growth and the Federal Reserve ending its QE program. Assets in the SPDR Gold Trust declined to the lowest in six years.

Comex gold for delivery in December traded at $1 174.2 per troy ounce at 9:30 GMT, down 2.04% on the day, having earlier plunged to $1 166.2, the lowest since July 2010. The precious metal dropped 2.15% on Thursday to $1 198.6, the lowest settlement since October 3rd, and is down 4.7% this week.

Meanwhile, silver for settlement in the same month fell 2.31% to $16.040, having earlier declined to $15.955 an ounce, the lowest since February 2010. The contract plunged 4.9% on Thursday to $16.420 and is down 6.7% so far this week. The metal is set for a fourth monthly decline.

Gold and silver were heavily impacted as the US dollar rallied to nearly the highest in more than four years. The greenback regained ground lost since the beginning of October after the Federal Reserve ended its Quantitative Easing program and said it could raise interest rates faster than expected, given that the labor market improves at an accelerated pace and prices retain stability.

Policy makers said the US labor market has strengthened enough to digest the end of Fed’s bond purchases, citing solid jobs growth and a lower unemployment rate since their last meeting in September. Non-farm payrolls have averaged 227 000 this year, headed for the best performance in 15 years, while the jobless rate fell to 5.9% in September, which is only 0.4% above the top of the range which the central bank considers as full employment.

FOMC members said that interest rates could be hiked sooner than otherwise, if Fed’s goals of full employment and stable prices are reached faster than expected, but stated that the opposite scenario can occur as well.

The greenback drew further support after the Commerce Department’s Bureau of Economic Analysis reported yesterday that the US economy grew by an annualized 3.5% in the third quarter, exceeding analysts projections for a 3% growth. The US economy posted its best six-month performance since the second half of 2003 after a 4.6% expansion in the second quarter.

A separate report showed that the number of Americans who filed for initial unemployment benefits in the week through October 25th rose by 3 000 to 287 000, slightly short of analysts’ projections for a drop to 283 000. However, the four-week average of jobless claims, which strips out weekly volatility, slid to 281 000 from the preceding week’s upward-revised 281 250, hitting the lowest level since may 2000.

The US dollar index, which measures the greenback’s performance against a basket of six major trading peers, was near the highest since 2010. The December contract gained 0.57% to 86.720 by 9:38 GMT, having earlier risen to 86.830, an inch below October 3rd’s four-year high of 86.870. The US currency gauge rose 0.23% on Thursday to 86.232.

The dollar was also lifted by a weaker yen after Bank of Japan unexpectedly boosted unprecedented stimulus. The central bank said it is targeting an 80 trillion yen ($726 billion) expansion in the monetary base, up from 60 to 70 trillion yen before.

SPDR holdings extend decline

Reflecting investors sentiment toward gold, holdings in the SPDR Gold Trust, the worlds largest bullion-backed ETP, fell for a third day on Thursday to 741.20, the lowest since October 2008.

The metal also failed to draw support from Asian physical markets, which typically underpin it when prices drop below $1 200 per ounce. Premiums on the Shanghai Gold Exchange, the main platform for physical trades in the country, declined on Friday to less than $1 an ounce after ranging between $1 and $2 yesterday.

Despite a previously reported pickup in Chinese imports in September ahead of the National Day Holiday, the China Gold Association said on Friday that the Asian countrys consumption fell by an annualized 21.4% in the first nine months to 754.8 tons.

Elsewhere on the precious metals market, platinum futures for delivery in January fell for a second day to $1 234.0 per ounce by 9:30 GMT, down 0.96% on the day, having earlier dropped to a four-week low of $1 221.7. Palladium December futures stood 0.05% higher at $781.10 an ounce after the contract slid 2.5% on Thursday to $780.70.

Pivot points

According to Binary Tribune’s daily analysis, December gold’s central pivot point on the Comex stands $1 203.5. If the contract breaks its first resistance level at $1 211.6, next barrier will be at $1 224.5. In case the second key resistance is broken, the precious metal may attempt to advance to $1 232.6.

The contracts three daily pivot support levels stand at: $1 190.6, $1 182.5 and $1 169.6.