Gold trading outlook: futures gain on Yellen speech

Gold climbed on Wednesday to end three days of losses and trade above $1 200 as Federal Reserve Chair Janet Yellen indicated that a sooner interest rate hike is unlikely.

Comex gold for delivery in April gained 1.01% to $1 209.4 per troy ounce by 07:50 GMT, having shifted in a daily range of $1 211.7 and $1 200.7 an ounce. The precious metal slipped 0.29% during the previous session to settle at $1 197.3, having previously fallen to its lowest since January 5th at $1 190.0.

Ms. Yellen did not point out an exact date on the upcoming lifting of borrowing costs and said that policy makers will discuss the possibility meeting by meeting. The chief indicated that Fed officials will first drop their “patience” stance on the matter, which in no case will tie them to a certain timetable.

Ms. Yellen underscored the slow wage growth and low inflation in the US and said policy makers are unlikely to initiate their first interest rate hike since 2006 during their next few meetings.

Commenting on international factors, Yellen said that Chinas growth may slow down even further as the country redirects its efforts away from investments and exports. While inflation is low and Europes growth maintains its slow pace, Ms. Yellen said that the recent launch of a stimulus program in the euro area should help progress.

However, Ms. Yellen warned that once policy makers remove their “patience stance”, an increase in interest rates “could be warranted at any meeting.”

The US dollar softened following the Fed chairs speech. Ms. Yellen is set to testify before the House Financial Services Committee later today, when she is expected to restate her position on the US economy and monetary policy.

“We dont think this rally will be sustainable. Ms. Yellen also made it abundantly clear that the US economy is recovering and she will be looking to normalize interest rates at one point. In the longer term that doesnt spell much optimism for gold” said Howie Lee, an investment analyst at Phillip Futures, cited by CNBC.

The potential increase in borrowing costs would curb demand for all non-interest-bearing assets, including gold.

The US dollar index for settlement in March was down 0.33% at 94.245 at 07:53 GMT, holding in a daily range of 94.465 and 94.175. The US currency gauge slid 0.10% on Tuesday and closed at 94.561. A weaker greenback makes dollar-denominated commodities cheaper for holders of foreign currencies and boosts their appeal as an alternative investment.

Meanwhile, the precious metal also benefited from the return of China, the worlds second-largest gold consumer. The countrys markets were closed for a week as its citizens celebrated the New Lunar Year holiday, removing crucial support for prices.

The metal was trading $5 to $6 higher than the global benchmark in Shanghai, up from premiums of $3-$4 in the pre-holiday period, despite projections of lower demand after the break.

Assets in the SPDR Gold Trust, the biggest bullion-backed ETF, remained unchanged on Tuesday at 771.25 tons.

Pivot Point

According to Binary Tribune’s daily analysis, April gold’s central pivot point on the Comex stands at $1 197.2. If the contract breaks its first resistance level at $1 204.5, next barrier will be at $1 211.6. In case the second key resistance is broken, the precious metal may attempt to advance to $1 218.9.

If the contract manages to breach the S1 level at $1 190.1, it will next see support at $1 182.8. With this second key support broken, movement to the downside may extend to $1 175.7.