Gold trading outlook: futures hover near $1 100 as bearish sentiment remains in force

Gold held slightly above the key $1 100 level on Tuesday after tumbling to a fresh five-year low on Monday as bearish sentiment continued to drive the market amid a looming US interest rate hike.

Gold futures for delivery in August traded 0.43% lower at $1 102.0 per troy ounce at 06:58 GMT, shifting in a daily range of $1 105.0 and $1 095.9. The contract tumbled 2.2% on Monday to $1 106.8, having earlier plunged to a five-year low of $1 080.0 per ounce.

The precious metal managed to win back some of the lost ground on Monday and cling on to the key psychological support at $1 100, another breach of which, however, could lead to the revisiting or revision of Mondays trough.

Investors have turned bearish on the yellow metal as the Federal Reserve is broadly expected to initiate its first increase in borrowing costs since 2006, which has sent the dollar soaring and has weighed on dollar-denominated raw materials. The US currency has also recently drawn support by better-than-expected economic data that supported the view of a robust economic recovery, while gold lost a key safe-haven support as Greece agreed to creditors’ terms for reforms in exchange for a third bailout that would allow the indebted country to remain in the euro area.

Fed Chairwoman Janet Yellen reiterated in her testimony before US Congress last week that the central bank remains on track to lift borrowing costs this year for the first time in nearly a decade. Her comments were in line with the FOMC’s most recent policy statement and a speech she held on July 10th 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.

The US dollar index, which gauges the greenback’s strength against a basket of major currencies led by the euro, was little changed for the day, hovering near the highest in three months. The September contract stood at 98.165 at 06:58 GMT after it rose 0.2% on Monday to 98.161, having earlier touched a peak of 98.310.

The metal was also negatively impacted after China updated its bullion reserves on Friday for the first time since 2009, saying that it has bought 604 tons of gold since 2009, second only to Russia, but the 57% increase to 1 658 tons was much smaller than analysts had expected. Meanwhile, money managers are holding the smallest net-bullish bets on gold since the US government started tracking data in 2006.

Assets in the SPDR Gold Trust, the biggest bullion-backed ETF, tumbled by 11.63 tons on Friday to 696.25 tons, and lost another 1.79 tons on Monday to 694.46, the lowest since September 2008. Holdings in the fund have shrunk by 49% since peaking in December 2012 at 1353.35 tons.

Pivot points

According to Binary Tribune’s daily analysis, August gold’s central pivot point on the Comex stands at $1 106.4. If the contract breaks its first resistance level at $1 132.9, next barrier will be at $1 158.9. In case the second key resistance is broken, the precious metal may attempt to advance to $1 185.4.

If the contract manages to breach the S1 level at $1 080.4, it will next see support at $1 053.9. With this second key support broken, movement to the downside may extend to $1 027.9.

In weekly terms, the central pivot point is at $1 140.3. The three key resistance levels are as follows: R1 – $1 150.5, R2 – $1 169.1, R3 – $1 179.3. The three key support levels are: S1 – $1 121.7, S2 – $1 111.5, S3 – $1 092.9.