Gold trading outlook: futures pare overnight gains on strong dollar

Gold retreated from a five-week high amid an outlook for a stronger dollar and as oil prices dropped, easing inflation concerns. Silver, platinum and palladium fell as well.

Comex gold for delivery in February slid 0.94% to $1 206.6 per troy ounce by 7:38 GMT, having shifted in a daily range of $1 212.6-$1 202.8. The precious metal surged by 3.62% to $1 218.1 on Monday, having shifted in an $80 daily range between a three-week low of $1 141.7 and a five-week high of $1 221.0 an ounce.

Gold pared overnight gains as the US dollar regained ground on Tuesday and crude oil fell after rebounding from a five-year low on Monday. The precious metal was heavily pressured as Swiss voters dismissed a proposal for the SNB to boost its gold holdings, while crumbling oil prices curbed concerns of inflation, against which gold is used as a hedge.

The yellow metal is headed for the first back-to-back annual drop since 2002 as the Federal Reserve wrapped up its unprecedented Quantitative Easing program and an interest rate hike is expected at some point in 2015. Diverging monetary policies between the Federal Reserve and other central banks, including the ECB and BOJ, have kept the dollar supported near the highest level in four and a half years, weighing on dollar-denominated commodities across the board.

Christine Lagarde, Managing Director of the International Monetary Fund, said yesterday that the Federal Reserve will increase interest rates “delicately and sensibly”, while the ECB and BOJ take steps to boost inflation and spur growth.

“The rally may have further to go near term but shorts exiting the market will provide only near term strength,” HSBC analysts said for CNBC. “The dollar still appears to be the favored currency and may provide greater headwinds for gold going forward.”

The US dollar index for settlement in December stood at 88.125 at 7:42 GMT, up 0.16% on the day, having ranged between 88.195 and 87.995 during the day. The contract rose to 88.505 on Monday, an inch below November 24th’s 4-1/2-year high of 88.515, before settling 0.49% lower at 87.982.

Swiss people cast a decisive “no” vote in a referendum on Sunday to ban the Swiss National Bank from selling its gold reserves and require the central bank to back at least 20% of its assets with the precious metal, from nearly 8% previously.

The proposal met broad disagreement, with 77% of participants voting against the measure. A “yes” vote would have led to the purchase of 1 500 tons of gold over the next five years.

Reflecting downbeat sentiment toward the precious metal, assets in the SPDR Gold Trust, the biggest bullion-backed ETF, were unchanged at 717.63 tons on Monday, the lowest since September 2008. The fund hasnt seen an inflow since November 17th.

Providing some support, India surprisingly eased gold import curbs last week but analysts expected no significant spike in demand in the near-term as the worlds second-biggest consumer of the precious metal was adequately supplied. Physical demand in China was sluggish on Tuesday.

Elsewhere on the precious metals market, silver for delivery in March fell 1.99% to $16.360 per ounce by 7:38 GMT, having touched a five-year low of $14.155 on Monday. The metal fell for a fifth straight month in November, the longest such streak since June 2013. Platinum futures for settlement in January dropped 1.18% to $1 227.0, while palladium for delivery in March slid 0.52% to $803.90.

Daily pivot points

According to Binary Tribune’s daily analysis, February gold’s central pivot point on the Comex stands $1 193.6. If the contract breaks its first resistance level at $1 245.5, next barrier will be at $1 272.9. In case the second key resistance is broken, the precious metal may attempt to advance to $1 324.8.

If the contract manages to breach the S1 level at $1 166.2, it will next see support at $1 114.3. With this second key support broken, movement to the downside may extend to $1 086.9.