Gold trading outlook: futures extend drop as focus shifts to US rates

Gold fell for a second day this week after Greece agreed to creditor demands, removing a risk factor for safe haven demand and shifting investors focus on expectations for the first interest rate increase in the US in almost a decade.

Gold futures for delivery in August traded 0.12% lower at $1 154.0 per troy ounce at 07:02 GMT, shifting in a daily range of $1 157.3 – $1 152.5. The contract slid 0.2% on Monday to $1 155.4, falling for a third straight session after a third consecutive weekly decline last week.

Gold, which is typically used as an alternative investment during times of economic and political instability, extended its drop as an all-night debate between European leaders ended Monday morning with Greece submitting to creditors’ requirements on the reforms needed to start a third bailout program that would keep the indebted country in the Eurozone.

However, analysts projected that with the lack of significant safe-haven bids prior to the Greek deal, downside movement after Monday’s meeting will likely not be extensive.

Assets in the SPDR Gold Trust, the biggest bullion-backed ETF rose to 709.07 tons on Monday from 707.58 tons on Friday, still remaining close to June 15ths nearly seven-year low of 701.9 tons.

Nevertheless, with a significant support for safe-haven demand now removed from play, the precious metals valuation is left primarily to its inverse relation to the US dollar and expectations for the first increase in borrowing costs in the US since before the global financial crisis.

“A resolution to the Greek crisis will allow the FOMC to place greater emphasis on the solid momentum in the U.S. economy,” Australia & New Zealand Banking Group Ltd. said in a note, cited by Bloomberg.

Federal Reserve Chair Janet Yellen suggested in a Friday speech on the US economic outlook that the central bank remains on course to begin gradually raising interest rates this year. Ms. Yellen underscored the US labor market’s continued weakness but said that the world’s biggest economy is expected to grow steadily for the remainder of the year. She is expected to provide more signals of the projected rate hike at her semiannual testimony to Congress on Wednesday and Thursday.

Investors tend to turn bearish on gold at times of economic growth and rising interest rates as the precious metal yields returns only through price gains, while other instruments that pay interest, such as bonds, tend to become more attractive.

“Its probably a one-time rate increase this year and probably in September and we may see gold falling to $1,080 when that happens,” said for CNBC Mark To, head of research at Hong Kongs Wing Fung Financial.

The US dollar index for settlement in September rose 0.16% to 97.150 by 07:02 GMT, shifting in a daily range of 97.220 – 96.905. The US currency gauge rose 0.86% on Monday to 96.998.

Meanwhile in top consumer China, economic growth in the second quarter is expected to have slowed down to the lowest since the global financial crisis, with estimates ahead of tomorrows data pinning Q2 GDP growth at the annualized pace of 6.9%, while quarter-on-quarter the Chinese economy likely expanded 1.7%.

Pivot points

According to Binary Tribune’s daily analysis, August gold’s central pivot point on the Comex stands at $1 156.4. If the contract breaks its first resistance level at $1 162.9, next barrier will be at $1 170.5. In case the second key resistance is broken, the precious metal may attempt to advance to $1 177.0.

If the contract manages to breach the S1 level at $1 148.8, it will next see support at $1 142.3. With this second key support broken, movement to the downside may extend to $1 134.7.

In weekly terms, the central pivot point is at $1 159.4. The three key resistance levels are as follows: R1 – $1 172.9, R2 – $1 187.9, R3 – $1 201.4. The three key support levels are: S1 – $1 144.4, S2 – $1 130.9, S3 – $1 115.9.