Gold trading outlook: futures set for weekly gain

Gold was steady on Friday following Thursdays losses that ended the longest daily advance since May as the Peoples Bank of China verbally supported the yuan and calmed fears of a broad currency war.

Gold futures for delivery in December traded 0.04% lower at $1 115.2 per troy ounce at 06:50 GMT, shifting in a daily range of $1 116.7 – $1 111.6. The contract fell 0.7% on Thursday, ending five straight days of losses, but was still up 1.9% for the week.

The precious metal had drawn support as an unexpected devaluation of the yuan sparked fears of a currency war, prompting many investors to seek safety in haven assets such as gold. The rally, however, seems to have been short-lived as the Chinese central bank intervened verbally to calm the markets, saying that there was no basis for a continued decline in the yuan given the Asian countrys strong economic fundamentals.

Raising the Renminbis reference rate for the first time since Tuesday added to upbeat US data on Thursday, shifting focus back to the Federal Reserves monetary stance and an interest rate increase that could come as early as next month. According to a Bloomberg survey conducted on August 7-12th, 77% of the participants expect the central bank to initiate its first hike in nearly a decade in September.

Data yesterday showed that retail sales in the US grew more than expected in July, while Junes reading was revised up to show flat performance from an initially measured contraction. A separate report by the Labor Department showed an initial jobless claims number in line with a robust pace of recovery, fanning confidence the Federal Reserve may hike next month. On the economic data table today are US producer inflation and industrial production for July, and the preliminary Michigan Consumer Sentiment index for August.

Global demand at lowest in six years

Still, the precious metals gains through Wednesday have set it on track to a weekly advance but the rally is not likely to be extended. Gold has fallen 6% this year and a drop this quarter would be its fifth consecutive, the longest such losing stretch since 1997.

A report by the World Gold Council showed yesterday that global gold demand tumbled to the lowest in six years in the second quarter after top two consumers China and India purchased less gold jewelry as incomes at both countries were separately hit.

Overall demand was 12% lower compared to the same quarter a year earlier, amounting to 914.9 metric tons. Chinese purchases contracted 3% as cooling economic growth and heavy fluctuations in the domestic stock market curbed appetite, while India saw purchases drop by a quarter as unfavorable weather conditions hit rural incomes.

Global jewelry demand, the biggest source of demand for gold, fell 14% to 513.5 tons from a year earlier, with that of China declining 5% to 174 tons and India’s dropping by 23% to 118 tons. Global investment demand slid 11% to 178.5 tons.

Still, central banks remained net buyers for an 18th straight quarter, boosting purchases by 11% to 137.4 tons from the previous quarter, although down 13% year-on-year, and Chinese and Indian demand is expected to pick up in the second half.

Aided by the safe-haven bids, assets in the SPDR Gold Trust, the biggest bullion-backed ETF, rebounded on Wednesday from the lowest since September 2008, rising by 4.18 tons to 671.87, the first increase since July 13th, but were unchanged on Thursday. Holdings in the fund have shrunk by little over 50% 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 $1 118.2. If the contract breaks its first resistance level at $1 123.7, next barrier will be at $1 131.7. In case the second key resistance is broken, the precious metal may attempt to advance to $1 137.2.

If the contract manages to breach the S1 level at $1 110.2, it will next see support at $1 104.7. With this second key support broken, movement to the downside may extend to $1 096.7.

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.