Gold trading outlook: futures tumble to 3-1/2-week low as Fed signals optimism

Gold fell to the lowest since early-October as the US dollar raced forward after the Federal Reserve wrapped up its Quantitative Easing program and said it might raise interest rates earlier than expected, provided the labor market completes an objective faster while prices remain stable.

Comex gold for delivery in December traded at $1 205.3 per troy ounce at 10:38 GMT, down 1.60% on the day, having earlier fallen to $1 201.1 an ounce, the lowest since October 6th. The precious metal slid 0.37% on Wednesday to $1 224.9 an ounce.

Gold dropped close to the $1 200 mark as remarks by policy makers were taken rather hawkish by investors, sending the dollar soaring. The greenback rallied after the Federal Reserve, as anticipated, wrapped up its Quantitative Easing program on Wednesday, dismissing recent fears of a global economic slowdown and low inflation and focusing on a robust labor market.

Policy makers said the US labor market has strengthened enough to digest the end of Fed’s bond purchases, citing solid jobs growth and a lower unemployment rate since their last meeting in September. Non-farm payrolls have averaged 227 000 this year, headed for the best performance in 15 years, while the jobless rate fell to 5.9% in September, which is only 0.4% above the top of the range which the central bank considers as full employment.

Policy makers said that interest rates could be hiked sooner than otherwise, if Fed’s goals of full employment and stable prices are reached faster than expected, but stated that the opposite scenario can occur as well. Nevertheless, the Federal Open Market Committee reiterated its previous pledge to keep borrowing costs low for a “considerable time”.

The US dollar index, which measures the greenback’s performance against a basket of six major trading peers, was at the highest in almost four weeks. The December contract rose by 0.34% to 86.330 by 10:37 GMT, the highest since October 6th and not far off from October 3rd’s four-year high of 86.870. The US currency gauge surged 0.66% on Wednesday to 86.036.

Data from Europe today came in slightly better than expected, also fanning some positive sentiment for the global economy.

Market players now turned their attention toward upcoming data from the US. The Commerce Department’s Bureau of Economic Analysis is projected to report that the US economy grew by an annualized 3.0% in the third quarter, while initial jobless claims likely matched the previous week’s 283 000.

“We think the next shoe to drop will come on Thursday when U.S. GDP numbers for the third quarter will be released,” said for CNBC Edward Meir, an analyst at INTL FCStone. “If the number comes in higher than 3 percent, as we suspect it will, we would not rule out another round of heavy selling in gold.”

In case the GDP figure comes in higher than anticipated, we could very well see the December contracts sell-off push it below October 6ths trough of $1 183.3, which was the lowest this year. Nevertheless, the $1 200 level is a key psychological level and will provide some support.

Assets in the SPDR Gold Trust, the biggest bullion-backed ETP and a proxy for investor sentiment towards gold, fell by 1.19 tons on Wednesday to 742.40 tons, the lowest since October 2008. The fund saw its biggest outflow this year last week.

Pivot points

According to Binary Tribune’s daily analysis, December gold’s central pivot point on the Comex stands $1 221.2. If the contract breaks its first resistance level at $1 234.1, next barrier will be at $1 243.4. In case the second key resistance is broken, the precious metal may attempt to advance to $1 256.3.

If the contract manages to breach the S1 level at $1 211.9, it will next see support at $1 199.0. With this second key support broken, movement to the downside may extend to $1 189.7.