Gold trading outlook: futures steady ahead of FOMC meeting outcome

Gold remained in a narrow weekly range, hovering not far off a 5-1/2-year low, as investors awaited the conclusion of the Federal Reserves two-day policy meeting for a timetable on this years expected interest rate hike.

Gold futures for delivery in August were up 0.05% at $1 096.7 per troy ounce at 07:02 GMT, shifting in a daily range of $1 098.5 – $1 093.9. The contract was little changed on Tuesday, settling at $1 096.2, after it rose 1% the prior day.

Mondays rally was largely fueled by covering of short positions, leaving bearish sentiment intact ahead of the conclusion of the FOMCs policy meeting. The yellow metal fell to a fresh 5-1/2-year low on Friday and slid for a fifth straight week, the longest such losing stretch since 2012, amid speculations that policy makers will confirm on Wednesday expectations for a rates increase in September or December.

Fed Chairwoman Janet Yellen reiterated in her testimony before US Congress earlier this month that the central bank remains on track to hike 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 support for safe-haven demand 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 market’s 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 price 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.

“We’re seeing a calamity for gold on many fronts,” said for Bloomberg Michele Santangelo, a money manager at Vunani Private Clients. “With China dumping stocks and wanting to hold cash, were not seeing the demand for physical gold that has been there in recent years.”

And although there has been some increase in demand for gold coins in July reported by the US Mint and the Royal Canadian Mint, the slide is expected to continue, with Goldman Sachs projecting a drop below the key psychological level of $1 000. Data by the US Commodity Futures Trading Commission showed that speculators turned bearish on gold in the week ended July 21st for the first time since the government started tracking data in 2006, holding a net-short position of 11 345 contracts.

Global assets in gold-backed ETFs have been declining for three straight months and now amount to about 1 541 metric tons, the fewest since 2009. Holdings in the SPDR Gold Trust, the biggest such ETF, were unchanged on Tuesday for a second day at 680.15 tons, the lowest since September 2008. Assets have shrunk by almost 50% since peaking in December 2012 at 1353.35 tons.

An overall strong US dollar continued to weigh on dollar-denominated commodities, including gold, although the greenback eased a bit last week going into Monday. Still, overall upbeat data have laid solid ground beneath the US currency. June durable goods orders on Monday topped projections, although consumer confidence, as reported by the Conference Board on Tuesday, suffered its biggest blow in four years in July and home prices in major US cities grew at a slower pace in May. On the positive side, activity in the US sector of services grew at a faster pace than expected this month, according to a preliminary report, while data later today are expected to show a rise in the number of pending home sales in June.

The US dollar index for settlement in September traded almost unchanged at 96.870 at 07:02 GMT, shifting in a daily range of 96.915-96.585. The contract rose 0.3% on Tuesday to 96.863.

Pivot points

According to Binary Tribune’s daily analysis, August gold’s central pivot point on the Comex stands at $1 095.0. If the contract breaks its first resistance level at $1 099.4, next barrier will be at $1 102.5. In case the second key resistance is broken, the precious metal may attempt to advance to $1 106.9.

If the contract manages to breach the S1 level at $1 091.9, it will next see support at $1 087.5. With this second key support broken, movement to the downside may extend to $1 084.4.