Gold trading outlook: futures hold near 1-week highs ahead of Fed decision

Gold clung on to solid overnight gains after an inflation report on Wednesday showing a drop in consumer prices further curbed expectations for the Federal Reserve to hike interest rates at its policy meeting that concludes later today.

Gold futures for delivery in December traded 0.10% higher at $1 120.1 per troy ounce at 06:50 GMT, shifting in a daily range of $1 122.6 – $1 118.4. The contract rose 1.5% on Wednesday, the most in nearly a month, to settle at $1 119.0, having earlier jumped to a one-week high of $1 123.7.

The precious metals rally was fueled by a Labor Department report showing that consumer prices in the US fell 0.1% in August in part due to cheaper gasoline. This was the first contraction since January. Year-on-year, the Consumer Price Index registered a mere 0.2% gain, while the measures excluding the more volatile food and energy costs posted a 0.1% gain in monthly and a 1.8% gain in annual terms.

“Slightly weaker-than-expected U.S. inflation data overnight eased concerns that the Fed will raise interest rates this week, which helped support gold prices,” analysts including Daniel Hynes at Australia & New Zealand Banking Group Ltd. wrote, cited by Bloomberg.

The US dollar index for settlement in December traded 0.17% lower at 95.385 at 06:50 GMT after it dropped 0.3% on Wednesday to 95.546.

All focus now falls on the Feds policy decision and its after-meeting statement, which, if not accompanied by a rate hike, should at least bring clarity on the central banks position and a more definitive timetable. Previously predominant, expectations for a move in September have recently eased due to fears of an economic slowdown in China and subsequent volatility in financial markets.

According to a Reuters poll of 80 analysts, 45 expect the Fed to leave interest rates unchanged on Thursday, while the remaining 35 participants project a hike. In case the two-day meeting concludes with an increase in borrowing costs, gold would very likely drop below the $1 100 mark, while a delay could propel it toward $1 150. However, upside momentum would probably remain limited as projections for the central bank to raise interest rates are very likely to materialize this year, or at any close subsequent meeting.

Holdings in global bullion-backed ETPs dropped for a seventh time in eight days through Tuesday, reaching the lowest in almost a month. Assets in the SPDR Gold Trust were unchanged for a fifth day at 678.18 metric tons on Wednesday, remaining nearly 50% 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 $1 115.2. If the contract breaks its first resistance level at $1 127.5, next barrier will be at $1 135.9. In case the second key resistance is broken, the precious metal may attempt to advance to $1 148.2.

If the contract manages to breach the S1 level at $1 106.8, it will next see support at $1 094.5. With this second key support broken, movement to the downside may extend to $1 086.1.

In weekly terms, the central pivot point is at $1 108.4. The three key resistance levels are as follows: R1 – $1 118.6, R2 – $1 133.7, R3 – $1 143.9. The three key support levels are: S1 – $1 093.3, S2 – $1 083.1, S3 – $1 068.0.