Gold trading outlook: futures hold below five-week high on global economy concerns

Gold held ground above $1 240, not far off a five-week high touched last week, but gains were capped by upbeat data from the US which sparked a rally in Asian equities.

Comex gold for settlement in December added 0.31% by 8:26 GMT to trade at $1 242.0 per troy ounce, having shifted in a daily range of $1 243.8-$1 234.9 an ounce. The precious metal lost 0.18% on Friday and closed the week at $1 239.0, marking an almost 4% gain in the past two five-day periods.

Gold rose on Monday as persisting concerns of a global economic slowdown maintained safe haven demand. Global shares lost more than $3.2 trillion this month as the International Monetary Fund trimmed its global growth forecast for 2015. Data tomorrow may show that Chinas economy grew at the slowest pace in five years in the third quarter as a property downturn dragged on demand.

Data by the U.S. Commodity Futures Trading Commission showed on October 17th that speculators added bullish bets on gold for the first time after eight straight weeks of declines, the longest such streak since 2010. Net-long positions in gold rose by 39% to 51 994 futures and options combined in the week ended October 14th, scoring the biggest gain since June 24th.

Assets in the SPDR Gold Trust, the biggest bullion-backed ETF and major gauge of investor sentiment toward gold, rebounded on Thursday from the lowest since December 2008 to 760.93 tons and remained unchanged on Friday.

US data

However, gains were capped by better-than-expected data from the US on Thursday and Friday, which sparked confidence among investors who had been worried about the global economy, and also backed the case of the Fed endings its bond purchases this month.

A drop in Septembers US retail sales was offset by a rebound in industrial production, while initial jobless claims and their four-week average fell to the lowest in more than 14 years, underscoring a healthier US labor market.

Another bright spot which sent Asia’s equity markets soaring on Monday was US consumer sentiment jumping to the highest in more than seven years. The preliminary Thomson Reuters/University of Michigan index of consumer sentiment unexpectedly rose to 86.4 in October, the highest since July 2007, defying projections for a drop to 84.1 from 84.6 in September.

A separate report showed housing starts rose more than expected at 6.3% in September, reversing a 12.8% decline a month earlier and underscoring solid underlying fundamentals for the US economy.

The US dollar index for settlement in December rose by 0.2% on Friday to 85.213 and traded 0.06% higher at 85.265 at 8:29 GMT on Monday.

Sam Laughlin, a metals trader at MKS Group, said for CNBC: “Global equities look to have recovered from last weeks selloff with strong gains being posted late in the week to put downward pressure on the precious metals. We are expecting $1 250 to form a strong resistance to any move higher in gold, while $1 220-$1 225 should support the yellow metal in the short term.”

Market players now eyed key economic data for the week, including China’s third-quarter GDP growth rate, as well as, among others, housing and consumer inflation data from the United States.

Elsewhere on the precious metals market, silver for delivery in December rose by 0.34% to $17.390 per ounce by 8:26 GMT, rebounding from a minor weekly decline, while platinum January futures added 0.61% to trade at $1 269.2. Palladium for settlement in December fell by 0.22% to $755.00 per troy ounce after it fell by the most in a month last week.

Pivot points

According to Binary Tribune’s daily analysis, December gold’s central pivot point on the Comex stands at $1 237.8. If the contract breaks its first resistance level at $ 1243.3, next barrier will be at $1 247.7. In case the second key resistance is broken, the precious metal may attempt to advance to $1 253.2.

If the contract manages to breach the first key support at $1 233.4, it may come to test $1 227.9. With this second key support broken, movement to the downside may extend to $1 223.5.

In weekly terms, the central pivot point stands at $1 237.1. The three resistance levels are: R1 – $1 252.2, R2 – $1 265.4, R3 – $1 280.5, while the three support levels will be encountered at: S1 – $1 223.9, S2 – $1 208.8 and S3 – $1 195.6.