Gold trading outlook: futures steady ahead of FOMC policy meeting

Gold held in a narrow range on Tuesday as investors braced for the Federal Open Market Committees two-day policy meeting which is largely expected to confirm an interest rate increase by the end of the year.

Gold futures for delivery in August traded 0.02% lower at $1 096.2 per troy ounce at 06:42 GMT, shifting between $1 097.9 and $1 091.7 for the day. The contract rose 1% on Monday to $1 096.4 after it tumbled for a fifth straight week last week, the longest such losing stretch since 2012.

The precious metal managed to recover some of the lost ground on Monday, mainly due to short covering, but bearish sentiment remained very much intact amid broad expectations that US policy makers will remain on track at this weeks policy meeting to raise borrowing costs this year. Moreover, analysts surveyed by Bloomberg project median odds of 50% for an increase in as early as September.

Those expectations drove the metal to the lowest in more than five years last week and also set it on track to its biggest monthly loss in two years. It is down more than 7% in 2015 and US speculators turned most bearish last week since the government started tracking data in 2006 as the rate hike prospects fueled a rally in the dollar against a basket of major trading peers and bolstered demand for interest-yielding assets.

Fed Chairwoman Janet Yellen reiterated in her testimony before US Congress earlier this month that the central bank remains on track to hike rates 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 metal lost a key safe-haven support earlier this month when Greece submitted to creditors demands for reforms in exchange for a third bailout, and such demand was also missing even as the Chinese equity markets rout continued, with the Shanghai Composite Index tumbling the most in eight years on Monday.

Physical demand from top consumer China has also failed to pick up even at these attractive levels, with data showing that net Chinese imports from main conduit Hong Kong slid to a 10-month low in June. A report earlier in July showed that the Asian country had bought 604 tons of gold since 2009, second only to Russia, but the 57% increase to 1 658 tons was much smaller than what analysts had expected.

Global assets in gold-backed ETFs fell 1.1% last week, as of Thursday, to 1 554.4 metric tons, the lowest since 2009. Holdings in the SPDR Gold Trust, the biggest such ETF, were unchanged on Monday at 680.15 tons, the lowest since September 2008, after seven straight daily declines. Assets have shrunk by almost 50% 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 $1 096.2. If the contract breaks its first resistance level at $1 104.6, next barrier will be at $1 112.9. In case the second key resistance is broken, the precious metal may attempt to advance to $1 121.3.

If the contract manages to breach the S1 level at $1 087.9, it will next see support at $1 079.5. With this second key support broken, movement to the downside may extend to $1 071.2.