Gold trading outlook: futures swing on China slowdown, US rates

Gold swung between small gains and losses on Wednesday, failing to track higher even as Asian shares slid following overnight Wall Street losses, as the US dollar firmed ahead of this weeks key employment data that might prompt the Fed to raise interest rates at its next meeting.

Comex gold for delivery in December traded 0.05% higher at $1 140.4 per troy ounce at 06:54 GMT, shifting in a daily range of $1 141.4 – $1 134.9. The contract rose 0.6% on Tuesday to $1 139.8, having touched a one-week intraday high of $1 147.3.

The precious metal rebounded from a 5-1/2-year low in late July and has remained supported by fears of an economic slowdown in China that caused a stock market rout and prompted many investors to seek safety in haven assets such as gold. The latest piece of government data from the Asian country showed that activity in China’s sector of manufacturing contracted for the first time last month since February, with the corresponding manufacturing Purchasing Managers’ Index coming in at a 3-year low of 49.7 from 50.0 in July.

A separate private report showed the contraction in manufacturing activity continued for a sixth straight month, with the Caixin China General Manufacturing PMI coming in at 47.3, slightly up from a preliminary estimate of 47.1, but down from 47.8 in July. As purchasing activity declined at the fastest rate since March 2009, output contracted by the most in 45 months and companies cut their workforce count for the 22nd consecutive month.

Despite the concerns surrounding the cooling Chinese economy and the related global market turmoil, gold has failed to convincingly rally as analysts and investors broadly expect the Federal Reserve to raise US interest rates this year for the first time in nearly a decade. Although the recent stock markets rout pared speculations that the central bank will make a move in September and rather act in December, a large part of analysts and investors still havent ruled out a hike this month, depending in large by this weeks employment data.

A private report is expected to show later today that employers in the US non-farm private sector probably added 201 000 new jobs in August, according to the median estimate by experts, following 185 000 new positions added in July. Published two days ahead of the governments employment statistics, this report by Automatic Data Processing is used by traders as a reliable predictor of the official nonfarm payrolls data. On Friday, the Labor Department is expected to say that US non-farm employers added 220 000 jobs last month, while the unemployment rate slid to a pre-recession low of 5.2%.

The US dollar index for settlement in September traded 0.14% higher at 95.575 at 06:54 GMT, having ranged between 95.730 and 95.450 for the day. The gauge slid 0.4% on Tuesday to 95.446. A firmer greenback makes dollar-denominated commodities such as gold more expensive for holders of foreign currencies and curbs their appeal as an alternative investment.

According to Bloomberg data, the probability of an increase in borrowing costs in September is 32% compared to 40% a month ago, while the odds for a December move are estimated at 59%. While the US labor market has shown a robust recovery, inflation continues to trail its targeted level, although Fed Vice Chairman Stanley Fischer said last week that there is a “good reason” to believe inflation will accelerate and that easing volatility will possibly pave the way for a rate hike. Meanwhile, Boston Fed President Eric Rosengren said rates would only get raised gradually, regardless of whether the central bank takes the first step a few months earlier or later.

Assets in the SPDR Gold Trust, the biggest bullion-backed ETF, were unchanged for a third day on Tuesday at 682.59 metric tons, the highest since July 23rd. Still, holdings in the fund remain about 49.5% below a peak of 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 $1 140.3. If the contract breaks its first resistance level at $1 146.8, next barrier will be at $1 153.8. In case the second key resistance is broken, the precious metal may attempt to advance to $1 160.3.

If the contract manages to breach the S1 level at $1 133.3, it will next see support at $1 126.8. With this second key support broken, movement to the downside may extend to $1 119.8.

In weekly terms, the central pivot point is at $1 140.2. The three key resistance levels are as follows: R1 – $1 163.6, R2 – $1 193.1, R3 – $1 216.5. The three key support levels are: S1 – $1 110.7, S2 – $1 087.3, S3 – $1 057.8.