Gold trading outlook: futures head for weekly gain

Gold futures were on the upside during morning trade in Europe today, adding to moderate gains this week. Despite logging a nine-month low yesterday, the precious metal seems to be holding its ground well against the strongest dollar in four-years.

Gold futures for December delivery on the Comex in New York traded at $1 225.7 per troy ounce by 8:10 GMT, up 0.31%. Prices ranged from $1 221.0 to $1 232.7 per troy ounce. The contract is on track to add ~0.8% this week, while it also reached a nine-month low at $1 206.6.

“Gold has been helped by geopolitics and weaker equity markets,” Zhu Runyu, an analyst at CITICS Futures Co., said for Bloomberg. “The longer-term downtrend remains intact as the U.S. economy and hence the dollar strengthens.”

Silver for December delivery stood for 0.95% daily gain, and still near a four-year low, at $17.603 per troy ounce. Meanwhile, palladium added 0.78% to trade at $809.00 and October platinum was up 0.06% at $1 315.05

The US dollar climbed to a new four-year high against a complex of other major currencies yesterday, pressuring the precious metals complex to multi-month lows, after readings showed new home sales in the US surged 18% in August to reach the highest annualized rate in six years at 504 000. The figure is a leading indicator for the strength of the retail market, which is the largest single sector in the US economy, accounting for 13% of US GDP, and as the reading thrashed expectations, the US dollar surged.

“The stronger dollar has dampened interest for gold,” Ronald Leung, chief dealer at Lee Cheong Gold Dealers in Hong Kong, said for Reuters. “Physical demand could help gold hold above $1 200 but demand is not strong enough to provide support.”

The increasing value of the US currency increases the price of dollar-denominated commodities, such as gold, to holders of other currencies, lowering interest in the metal.

Investors now look to the upcoming final readings on US GDP growth for the second quarter of 2014. Analysts expect the figure to beat preliminary standings of 4.0% and 4.2% and log at 4.6%, which would be a 4.1/2-year high, reinforcing confidence in the recovery of the US economy.

Relying on data supporting the quick recovery scenario, the Fed made dollar-bullish announcements last week, upping the targeted rate by the end of 2015.

Meanwhile, the strengthening of the dollar was further supported by weakness in the greenbacks top competitor, the euro.

A string of weak economic data prompted the European Central Bank (ECB) to trim the central lending rate to the historic low of 0.05% earlier this month and set the stage for a €3tn stimulus program. The news, and the following further downbeat economic data, pressured the euro to a two-year low against the dollar this week.

Meanwhile, US-led air strikes on Islamic State (IS, ISIS, ISIL) targets in Syria has so far failed to spook markets. Investors seem to regard the actions as positive for the security of the region, shrugging off the only force on the bull side lately.

Goldman Sachs’s Jeffrey Currie maintained the bank’s forecast for gold to drop to $1 050 by the end of 2014.

Technical support and resistance levels

According to Binary Tribune’s daily analysis, December gold’s central pivot point on the COMEX stands at $1 217.9. In case futures manage to breach the first resistance level at $1 229.3, the contract will probably continue up to test $1 236.6. In case the second key resistance is broken, the precious metal will likely attempt to advance to $1 248.0.

If the contract manages to breach the first key support at $1 210.6, it will probably continue to slide and test $1 199.2. With this second key support broken, the movement to the downside may extend to $1 191.9.

Do you think gold is performing well against the strong dollar?

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