Gold trading outlook: futures edge up on China weakness

Gold rebounded from a three-week low on Monday following weak Chinese economic data that pressured Asian equities, but gains were capped on US interest rate hike concerns.

Comex gold for delivery in April was up 0.38% at $1 240.3 per troy ounce at 08:06 GMT, shifting in a daily range of $1 240.7-$1 234.4. The precious metal lost 2.23% on Friday, having earlier fallen to its lowest since January 15 at $1 228.2.

Gold fell on Friday as the Labor Department released a report showing strong US job growth accompanied with an increase in wages. The higher figures support the Federal Reserves intention to initiate its first increase of borrowing costs since 2006 by the middle of this year.

The report also comes at a time when many analysts speculate that the Fed will postpone the planned interest rate hike as US inflation is still below policy makers target of 2%, pressured by low oil prices.

An eventual boost to borrowing costs would hurt demand for non-interest-bearing assets, including the yellow metal, while also lending support for the US currency.

The US dollar index for settlement in March was down 0.19% at 94.670 at 08:07 GMT, holding in a daily range of 94.905-94.640. The US currency gauge jumped 1.19% on Friday to 94.851. 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.

“The small bounce we are seeing today is probably because of the drop in equities but it may not hold,” said Ronald Leung, chief dealer at Lee Cheong Gold Dealers in Hong Kong, cited by CNBC. “The bigger factor influencing gold prices is still the timing of the interest rate hike in the United States.”

The metal was trading $4-$5 on ounce higher than the global benchmark on the Chinese physical markets, as people in the country, which is the worlds largest gold consumer, prepare to celebrate the Lunar New Year.

During the holiday, on February 19-20, people exchange gold gifts for good luck, spurring higher demand for the precious metal. However, the interest towards the metal is not expected to continue for much longer as most people have already stocked up for the holiday.

Additionally, a report by the US Commodity Futures Trading Commission showed on Friday that money managers and hedge funds decreased their net long positions in gold options and futures during the week ended February 3, marking the first decline in six weeks.

Assets in the SPDR Gold Trust, the biggest bullion-backed ETF, remained on Friday at the highest level since late September at 773.31 tons. Changes in holdings typically move gold prices in the same direction.

Pivot Points

According to Binary Tribune’s daily analysis, April gold’s central pivot point on the Comex stands at $1 243.9. If the contract breaks its first resistance level at $1 259.7, next barrier will be at $1 284.7. In case the second key resistance is broken, the precious metal may attempt to advance to $1 300.5.

If the contract manages to breach the S1 level at $1 218.9, it will next see support at $1 203.1. With this second key support broken, movement to the downside may extend to $1 178.1.