Gold trading outlook: futures rise on safe haven bids, US dollar climbs

Gold prices rose during early trade in Europe today, as remarks of a possible Russian invasion of Ukraine stoked safe haven demand. Meanwhile, the US dollar is hovering at a one-year peak, in light of improving readings for the worlds top economy.

Gold futures for December delivery traded at $1 291.7 per troy ounce at 8:34 GMT on the COMEX in New York, up 0.50%. Prices ranged from $1 288.5 to $1 293.3 per troy ounce. The contract dropped 0.28% yesterday, nearing a 1.1/2-month low.

“Gold could face difficulty breaking through $1 300 because the dollar is doing really well,” Chen Min, a precious metals analyst at Jinrui Futures in Shenzhen, said for Reuters. “The only supporting factor is geopolitical tensions, and unless tensions escalate drastically over Ukraine, gold wont be able to gain much.”

Meanwhile, September silver was up 0.10% to trade at $19.858 per troy ounce, while palladium was down 0.11% at $847.40. October platinum was up 0.14% at $1 457.90.

US economy

ISM posted its key reading on the US services sector yesterday, revealing a stark improvement. The Institutes services PMI for July was logged at 58.7, the highest standing in more than 3 years. The result beat expectations quite handsomely and boosted the dollar further.

Positive reports for the US economy support the dollar, lifting its price against other currencies. Since gold mostly is traded in dollars, a pricier dollar means the precious metal is more expensive to other currencies, lowering its investment appeal.

Also yesterday, US factory orders were reported to have increased more than expected in June, further lifting positive sentiment for the US.

Elsewhere, Markit posted a slightly worse than expected July services PMI reading for the Eurozone, while retail sales in the Bloc were as expected in June, adding 0.4% on a monthly basis. Earlier today, however, Markits retail PMI reading for July was logged quite worse than last months, standing at 47.6, meaning the retail sector has seen a significant contraction, adding to negative sentiment after Germany, the Blocs top economy, posted shrinking factory orders.

As outlooks for the EU economy worsen, the euro drops in value, and the euro has a very strong opposite correlation with the US dollar, meaning a weakness for the euro translates into a strengthening for the dollar, which pressures the dollar-denominated gold.

Dollar, stocks

The US Dollar Index, which measures the greenbacks performance against six other major currencies, added 0.25% on Tuesday, on the back of improving US readings and worsening EU figures. By 8:27 GMT today the gauge was unchanged at 81.64, after reaching a 13-month high of 81.70 earlier.

US stocks continued downwards on Tuesday, after Markits readings were outweighed by the risk-off mentality in light of developments in Ukraine. S&P closed Tuesdays session for a loss of 0.97%, Dow 30 had dropped 0.84%, while Nasdaq 100 was down 0.87%.

Meanwhile, assets at the SPDR Gold Trust were unchanged at 800.05 tons, the lowest level in a month, after dropping 1.8 tons on Monday.

Ukraine crisis

Polish Foreign Minister Radoslaw Sikorski suggested Russia was preparing to invade Ukraine, in light of new combat-ready Russian troops massing near the border. The Kremlin had announced military exercises would be taking place near the border, with the aim of consolidating its air force unity.

“Polands concerned now that tensions are increasing on the Russia-Ukraine border…and gold is grinding higher,” Bill Baruch, senior market strategist with iiTrader in Chicago, said for the Wall Street Journal.

The build up in forces on the Russian side comes as Kiev is pushing with its offensive against the pro-Russian separatists. The city council of Luhansk said on its website that two more civilians were killed, as active combat is taking place in the outskirts of the city. More than half of the Luhansks original 0.5 million residents have evacuated and the city itself is without power and with limited water supply.

Russia once again put the blame on Ukrainian pro-western authorities for the imminent humanitarian disaster, adding that it was ready to offer humanitarian aid to the embattled regions.

Meanwhile, Russian President Vladimir Putin called on his government to respond to the US and EU sanctions, adding that any retaliation “must be done extremely carefully to support producers and avoid harming consumers.”

The West stepped up measures against Moscow after the downing of Malaysian airliner over rebel-held territory in east Ukraine last month. The US and the UK have said that it was the pro-Russian rebels who shot down the plane, using a Russian-supplied missile.

Technical support and resistance levels

According to Binary Tribune’s daily analysis, gold December future’s central pivot point on the COMEX stands at $1 290.8. In case futures manage to breach the first resistance level at $1 294.5, the contract will probably continue up to test $1 300.2. In case the second key resistance is broken, the precious metal will likely attempt to advance to $1 303.9.

If the contract manages to breach the first key support at $1 285.1, it will probably continue to slide and test $1 281.4. With this second key support broken, the movement to the downside may extend to $1 275.7.