Gold trading outlook: futures slide as dollar rallies, central bank demand supports

Gold pared its weekly advance on Friday as the US dollar rallied against the euro after ECB President Mario Draghi outlined a dim prospect for the Eurozone in the medium-term. Increased central bank demand for bullion kept losses checked.

Comex gold for delivery in December fell by 0.03% to $1 190.6 per troy ounce by 9:42 GMT, having fallen to a session low of $1 186.1. The precious metal slid for a second day on Thursday, settling the day 0.25% lower at $1 190.9. Prices are up 0.4% so far this week.

The yellow metal trimmed further its already slim weekly gain as the US dollar rallied against the euro after ECB President Mario Draghi said that the Eurozones economy will likely remain stagnant in the short-to-medium term.

The central bank has launched a series of measures to ease credit tightness in the single currency bloc in order to spur growth and battle muted inflation, including cutting interest rates to record low and announcing plans to purchase securities.

Draghi said in an opening speech at the Frankfurt European Banking Congress that “strong recovery is unlikely in the coming months”.

The US dollar index for settlement in December surged 0.44% to 88.055 by 9:42 GMT. The contract hit a one-week high of 88.150 earlier in the session, not far off from November 14ths 4-1/2-year high of 88.365. The greenback gauge is up 0.6% so far this week.

The precious metal drew support after data yesterday showed that Russia expanded its gold reserves in October by 19.7 tons, while IMF statistics revealed that Azerbaijan, Belarus, Kazakhstan and Mauritius also increased their gold reserves. Russia has purchased about 150 tons of gold this year, central bank Governor Elvira Nabiullina said earlier this week.

However, Ukraine slashed its gold holdings to 840 000 ounces in October from 1.3 million a month earlier, compared to 1.36 million ounces at the end of 2013. The countrys foreign currency reserves are shrinking as it battles with pro-Russian rebels in eastern Ukraine, which impaired industrial output and sent the national currency falling.

Swiss referendum

Weighing on the yellow metal, an opinion poll showed that support for a Swiss referendum to change the Swiss National Bank’s gold policy fell to 38% from 44% in October. Under the proposal, the central bank would be banned from selling its gold reserves and should back at least 20% of its assets with the metal, up from 7.8% in October. If the vote were to be positive, this would drive physical demand for the precious metal, boosting prices up. The vote will be carried on November 30th.

Yesterdays upbeat US data also fanned negative sentiment for gold. While latest economic figures from Europe and Japan have shown a deterioration in economic conditions, the US reported that existing home sales rose by 1.5% in October to an annualized pace of 5.26 million, the highest since September 2013.

Meanwhile, the Philadelphia Fed Manufacturing Index surged to 40.8 in November, the highest since March 2011, vastly exceeding expectations for a drop to 18.5 from 20.7 in October.

A separate report by the Labor Department showed that consumer inflation in the US was flat in October at an annualized 1.7%, beating estimates for a drop to 1.6%. Albeit inflationary pressures have a positive effect on gold, which is used as a hedge against rising prices, drawing closer to Feds target bolsters expectations for an interest rate hike by mid-2015.

Reflecting negative investor sentiment toward gold, assets in the SPDR Gold Trust, the biggest bullion-backed ETF, remained near the lowest level in six years on Thursday at 720.91 tons. Holdings in the fund fell to 720.62 tons on November 13, the lowest since September 2008.

Pivot points

According to Binary Tribune’s daily analysis, December gold’s central pivot point on the Comex stands at $1 187.9. If the contract breaks its first resistance level at $1 199.6, next barrier will be at $1 208.3. In case the second key resistance is broken, the precious metal may attempt to advance to $1 220.0.

If the contract manages to breach the S1 level at $1 179.2, it will next see support at $1 167.5. With this second key support broken, movement to the downside may extend to $1 158.8.