Gold trading outlook: futures drop as yuan depreciation lifts dollar

Gold fell on Tuesday after its biggest daily gain in almost two months as China devalued its currency to boost economic activity following recent downbeat data, driving a rally in the dollar and curbing demand for bullion.

Gold for delivery in December traded 0.37% lower at $1 100.0 per troy ounce at 06:38 GMT, shifting in a daily range of $1 106.7 – $1 093.3. The contract rose 0.9% on Monday to $1 104.1 an ounce, the highest close since July 21st.

The precious metal has fallen by more than 7% this year amid the prospects of the first interest rate hike in the US since 2006, and Chinas move on Tuesday added to the already heavy pressure. Beijing cut the yuans fixing rate by 1.9%, sending it the lowest in nearly three years, after data over the weekend showed a much larger than expected slump in the Asian nations exports in July. The unexpected move, described by the Peoples Bank of China as a “one-off depreciation”, came after the central bank earlier said that a strong yuan was pressuring exports.

“Many people in the market have been expecting a devaluation but just not a one-off, 2 percent adjustment immediately on the yuan fixing,” said for Bloomberg Wallace Ng, a trader at Gemsha Metals Co. “It will lead to dollar strength, which is bearish for dollar-denominated gold.”

The US dollar index for settlement in September was up 0.38% at 97.570 at 06:54 GMT, shifting in a daily range of 97.645-97.125. The contract fell 0.4% on Monday to 97.202 after it hit a four-month high of 98.425 on Friday.

The yellow metal rose for a third day yesterday as a slightly slower pace of job creation in the US in July spurred speculations the Federal Reserve may not initiate an increase in borrowing costs in September, rather in December. Data by the Labor Department showed that US nonfarm employers added 215 000 jobs in July, compared to a projected gain of 223 000. However, the number was in line with the general view of a continuously improving labor market and payrolls data for May and June were revised up to show that 14 000 more jobs were created for the period than previously reported.

Also on the positive side, the unemployment rate remained at 5.3% in July, the lowest since April 2008, while wage earnings rose 0.2%.

Atlanta Federal Reserve President Dennis Lockhart said last week that the central bank is close to an increase and it would take “significant deterioration” in the coming US economic data for him to not support a rate hike in September. He confirmed on Monday a decision to hike should come soon, but stressed that the subsequent increases should be gradual.

Reflecting the poor investor sentiment, holdings in bullion-backed ETPs fell for the 17th time in 18 days on Monday, hitting the lowest since 2009. Assets in the SPDR Gold Trust, the biggest gold-backed ETF, were unchanged on Monday at 667.69 tons, the lowest September 2008. Holdings in the fund have shrunk by nearly 51% since peaking at 1353.35 tons in December 2012.

Pivot points

According to Binary Tribune’s daily analysis, December gold’s central pivot point on the Comex stands at $1 100.5. If the contract breaks its first resistance level at $1 112.1, next barrier will be at $1 120.0. In case the second key resistance is broken, the precious metal may attempt to advance to $1 131.6.

If the contract manages to breach the S1 level at $1 092.6, it will next see support at $1 081.0. With this second key support broken, movement to the downside may extend to $1 073.1.

In weekly terms, the central pivot point is at $1 091.1. The three key resistance levels are as follows: R1 – $1 101.9, R2 – $1 109.8, R3 – $1 120.6. The three key support levels are: S1 – $1 083.2, S2 – $1 072.4, S3 – $1 064.5.