Gold trading outlook: futures extend drop on looming US rate hike

Gold fell for a sixth straight session on Thursday after Fed Chair Janet Yellen reaffirmed the likeliness of an interest rate hike this year, which, coupled with better-than-expected US economic data, sent the dollar soaring versus a basket of trading peers.

Gold futures for delivery in August traded 0.14% lower at $1 145.8 per troy ounce at 07:10 GMT, shifting in a daily range of $1 148.2 – $1 144.8. The contract slid 0.5% yesterday to $1 147.4 an ounce, having earlier dropped to $1 141.9, the lowest since early November, 2014.

Fed Chairwoman Janet Yellen reiterated in her testimony before US Congress that the Federal Reserve remains on track to lift borrowing costs this year for the first time in nearly a decade. Her comments were in line with the FOMCs most recent policy statement and a speech she held last Friday when she underscored a continued weakness in the US labor market but also expressed confidence that the US economy will continue to grow steadily in 2015, helping improve labor conditions. Ms. Yellen testifies today before the Senate Banking Committee and is anticipated to repeat those comments.

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.

Meanwhile, data yesterday showed a faster-than-expected pick-up in US producer prices in June, while industrial production last month also came in above projections and factory activity in the state of New York grew more than expected in July.

The US dollar index, which measures the strength of the greenback against a basket of six major trading peers, rose to a fresh 1-1/2-month high on Thursday. The September contract hit a peak of 97.565 earlier in the session and traded at 97.455 at 07:09 GMT, up 0.18% on the day. The contract added 0.5% on Wednesday to settle at 97.279.

Assets in the SPDR Gold Trust, the biggest bullion-backed ETF, were unchanged at 709.07 tons for a third on Wednesday, remaining close to June 15th’s nearly seven-year low of 701.9 tons.

Physical demand in China has risen slightly, with premiums over spot on the Shanghai Gold Exchange inching up to $2-$4 per ounce, but sluggish growth is expected to keep demand from the worlds top consumer limited. Still, data from yesterday showed that the Chinese economy grew slightly faster than expected in the second quarter, while industrial production in June also topped analysts projections.

Pivot points

According to Binary Tribune’s daily analysis, August gold’s central pivot point on the Comex stands at $1 148.4. If the contract breaks its first resistance level at $1 154.8, next barrier will be at $1 162.3. In case the second key resistance is broken, the precious metal may attempt to advance to $1 168.7.

If the contract manages to breach the S1 level at $1 140.9, it will next see support at $1 134.5. With this second key support broken, movement to the downside may extend to $1 127.0.

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.