Gold trading outlook: futures pressured by strong dollar

Gold was steady on Wednesday after two days of losses, weighed by a strong dollar, even as downbeat China data rekindled concerns over a global economic slowdown.

Gold futures for delivery in December were little changed at $1 125.7 per troy ounce at 06:50 GMT, having shifted in a narrow daily range of $1 126.3 – $1 121.1. The contract slid 0.7% on Tuesday to $1 124.8, adding to Mondays 0.4% decline.

The precious metal moved away from a three-week high touched on Friday as the US dollar strengthened on growing expectations that the Federal Reserve will raise borrowing costs this year for the first time since 2006. Gold rallied more than 3% last week, ending three straight weekly drops, after the central bank decided at its policy meeting ended Thursday to delay an anticipated hike, most likely for later this year, citing cooling global growth, financial market volatility and sluggish inflation at home.

However, with the US labor market continuing to improve, a majority of traders and analysts expect the central bank to take action in December, rendering any gold rally as short-lived. Fed Chair Janet Yellen told a press conference that most policy makers still expect to raise borrowing costs this year, underscoring the strength of the US economy and tying last week’s decision to uncertainty abroad and recent market turbulence.

The US dollar index contract with settlement in December traded 0.1% higher at 96.535 at 06:50 GMT, having earlier risen to 96.650. The US currency gauge rose 0.4% on Tuesday and is up 1.4% for the week.

The precious metal also failed to move higher even as worse-than-expected manufacturing data from China sparked fears of an entrenched global economic slowdown, sending Asian shares tumbling. Activity in the Asian countrys sector of manufacturing contracted for a seventh straight month in September, with the corresponding Caixin Flash China General Manufacturing PMI tumbling to 47.0, the lowest in 78 months, while the output index slid to 45.7, also a 6-1/2-year trough.

“The decline indicates the nation’s manufacturing industry has reached a crucial stage in the structural transformation process,” said in the report Dr. He Fan, Chief Economist at Caixin Insight Group. “Patience may be needed for policies designed to promote stabilization to demonstrate their effectiveness.”

Investors will now focus on the remaining crucial economic data left for the week, including US manufacturing activity, durable goods orders, new home sales and Fridays final reading of second-quarter GDP growth.

Data by the US Commodity Futures Trading Commission showed on Friday that hedge funds and money managers cut their net-long position in COMEX gold to the lowest in five weeks in the week ended September 15th, while increasing their short positions.

Assets in the SPDR Gold Trust, the biggest bullion-backed ETF, rose by 1.19 tons on Tuesday to 675.8, following a drop of 3.57 the previous day, which was the first change since September 9th. Still, holdings remain little over 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 $1 127.1. If the contract breaks its first resistance level at $1 133.8, next barrier will be at $1 142.7. In case the second key resistance is broken, the precious metal may attempt to advance to $1 149.4.

If the contract manages to breach the S1 level at $1 118.2, it will next see support at $1 111.5. With this second key support broken, movement to the downside may extend to $1 102.6.