Gold trading outlook: futures slide on stronger equities

Gold extended overnight losses on Thursday as a rebound in oil and equity prices, combined with stronger US economic data curbed the precious metals appeal as a hedge.

Comex gold for delivery in February dropped 0.17% to $1 208.7 per troy ounce by 09:14 GMT, having shifted in a daily range of $1 214.4 and $1 204.9. The precious metal fell 0.71% on Wednesday to $1 210.7, ending a three-day streak of gains.

“We see a bit of calm returning to the equity and oil markets, so gold takes a back seat again,” Wang Tao, a strategist at CITIC Futures, wrote in an e-mail, cited by Bloomberg. “We continue to expect that the Fed will raise rates this year, which will drive the dollar higher and pressure gold.”

The yellow metal reached its highest level in three weeks earlier this week due to rising concerns that Greece will be the first country to leave the Eurozone, should the Syriza party win at the elections scheduled on January 25.

However, gold reversed course after equities were aided by stronger US economic data and oil prices rebounded from fresh 5-1/2-year lows reached this week.

The report released on Wednesday saw more people taking jobs in the private sector in December, the data also showed the US trade deficit narrowed to an 11-month low in November.

Assets in the SPDR Gold Trust, the biggest bullion-backed ETF, fell for a second consecutive day by 2.99 tons on Wednesday to 704.83 tons, the lowest since September 2008. Holding changes typically move gold prices in the same direction. Assets fell 11% last year compared to a 41% drop in 2013.

Investors will be closely observing the US payrolls report due to be released later this week, looking for hints on whether the economy is improving. A stronger economy would support the already strong dollar and may prompt Fed officials to raise interest rates sooner than previously announced.

Minutes from FOMC’s December meeting showed that policy makers were unlikely to begin raising interest rates at least for their next couple of meetings, i.e. before April 28-29. However, dropping the pledge to keep borrowing costs at rock bottom for “considerable time” and replacing it with a “patient” stance suggested a lift-off at some point in 2015 amid strong consumer confidence and payroll gains.

The committee also mulled over overseas risks, including the recent oil price rout, and concluded that they were largely offset by robust domestic growth. Concerns were also expressed about inflation running below Fed’s 2% target for 31 straight months, with the central bank’s preferred gauge – personal consumption expenditures – standing at 1.2% for the year through November. However, the committee said it expects inflation to near the targeted level as the labor market improves and the effects of cheaper energy diminish.

The US dollar index for settlement in March was up 0.39% at 92.475 at 09:14 GMT, holding in a daily range of 92.545 – 92.220. The US currency gauge gained 0.41% on Wednesday to 92.115. A stronger greenback makes dollar-denominated commodities more expensive for holders of foreign currencies and curbs their appeal as an alternative investment, and vice versa.

“We are calling for a $1,000-$1,350 trading range for gold in 2015, with the downside being reached if equity markets do well and if the dollar remains on an upside trajectory,” said INTL FCStone analyst Edward Meir, cited by the CNBC.

Pivot Points

According to Binary Tribune’s daily analysis, February gold’s central pivot point on the Comex stands at $1 213.1. If the contract breaks its first resistance level at $1 217.0, next barrier will be at $1 223.4. In case the second key resistance is broken, the precious metal may attempt to advance to $1 227.3.

If the contract manages to breach the S1 level at $1 206.7, it will next see support at $1 202.8. With this second key support broken, movement to the downside may extend to $1 196.4.