Gold trading outlook: futures hover near 4-year lows as dollar rises

Gold fell for the fourth consecutive day to trade near its 4-year low and is likely to drop even further as the U.S. dollar strengthened and technical analysis points towards taking bearish positions.

Comex gold for delivery in December traded at $1 169.7 per troy ounce at 8:21 GMT, down 0.16% on the day, having earlier dropped to $1 161.0. The precious metal fell 2.25% on Friday and closed at $1 171.6, having reached a new four-year low of $1 160.5 during the day.

Gold was heavily affected by the U.S. dollar, which reached a new four-year high on Monday. The currency gained ground after the Federal Reserve ended its monthly bond purchases and informed that an increase in interest rates may come sooner that expected as the labor market improves at faster pace and prices continue to stabilize.

Fed officials announced that if their targets of full employment and stable prices are met faster than expected, they would increase the interest rates sooner. However lending costs remain low for now and will stay that way for a “considerable time”, the Federal Open Market Committee said.

Markit Economics will likely report that factory output in the US expanded at a solid pace in October, but slower from a month earlier. The respective Manufacturing PMI is expected to confirm a preliminary reading of 56.2, trailing September’s final reading of 57.5.

Meanwhile, the Institute for Supply Management, whose manufacturing report is more widely tracked, is anticipated to report that manufacturing activity growth in the US remained robust, but it slowed down for the second consecutive month. The ISM Manufacturing PMI is poised to come in at 56.2 from 56.6 in September, registering the 17th straight month of expansion.

The report is also expected to show that the manufacturing employment subindex inched up to 54.8 from 54.6 a month earlier, complementing recent upbeat labor data from the US.

The US dollar index, which measures the greenback’s performance against a basket of six major trading peers, continued to gain ground. The December contract rose by 0.25% to 87.235 by 8:22 GMT on Monday, overtaking its four-year high of 86.870 reached on October 3rd. The U.S. currency gained 0.91% on Friday to 87.016.

Last Thursday the Bureau of Economic Analysis released its early estimate of GDP for the third quarter. The announcement showed a 3.5% increase, down from Q2 GDP of 4.6%, but still better than expected.

Assets in the SPDR Gold Trust, the biggest bullion-backed ETP and a proxy for investor sentiment towards gold, remained unchanged on Friday for a second day at 741.20 tons, the lowest since October 2008.

Pivot points

According to Binary Tribune’s daily analysis, December gold’s central pivot point on the Comex stands $1 178.2. If the contract breaks its first resistance level at $1 195.8, next barrier will be at $1 220.1. In case the second key resistance is broken, the precious metal may attempt to advance to $1 237.7.

If the contract manages to breach the S1 level at $1 153.9, it will next see support at $1 136.3. With this second key support broken, movement to the downside may extend to $1 112.0.